Real Estate Reciprocity Act
- Sponsor
- Rep. Harrigan, Pat [R-NC-10]
- Committees
- Foreign Affairs Committee (primary)
- Last action
- May 23, 2025
Bottom line
The bill seeks to establish reciprocity in real estate ownership by taxing foreign buyers from countries that restrict U.S. citizens, while also increasing transparency of foreign real estate holdings in the U.S.
What it actually does
This bill, the "Real Estate Reciprocity Act," significantly amends the Internal Revenue Code to expand reporting requirements for foreign persons holding U.S. real property interests, removing existing dollar thresholds. Crucially, it imposes a new 50% tax on the acquisition of U.S. real property by "disqualified persons," defined as citizens or entities from countries that prohibit U.S. citizens from owning real estate, or entities 10% controlled by such persons or countries. It also requires the Secretary of State to annually report on these "disqualified countries."
Proponents argue
Supporters argue this bill promotes fairness and national interest by ensuring that foreign nationals and entities do not enjoy unrestricted real estate ownership in the U.S. if their home countries deny similar rights to U.S. citizens. They contend it addresses concerns about foreign influence, potential national security risks, and the impact of foreign investment on domestic housing markets, while also increasing transparency regarding foreign real estate holdings.
Opponents contend
Opponents might argue that the 50% tax is an extreme measure that could significantly deter legitimate foreign investment, potentially harming the U.S. real estate market and broader economy. They may also raise concerns about the administrative complexity of identifying "disqualified countries" and persons, potential diplomatic repercussions, and the risk of unintended consequences for international relations and trade.
The bill is relatively short and its core provisions are clearly stated, making it accessible for an informed reader to grasp its main intent and mechanisms within a reasonable timeframe.
Section 1
Short Title
This section establishes the official short title of the bill as the "Real Estate Reciprocity Act," which is how the legislation would commonly be referred to if enacted.
Supporters argue
Supporters argue that a clear and concise short title helps in easily identifying and referencing the legislation, aiding public discourse and legislative processes.
Critics contend
No specific opposition is typically raised against this provision as it is a standard legislative practice.
Tradeoffs
None.
Section 2
Expanded Reporting for Foreign Real Property Holdings
This section amends Section 6039C of the Internal Revenue Code to remove the existing dollar threshold for reporting foreign ownership of U.S. real property. It mandates that any foreign person who did not engage in a U.S. trade or business during a calendar year must report their direct investments in U.S. real property interests. This significantly broadens the scope of reporting requirements.
Section 3
Annual Report on Foreign Prohibition of U.S. Real Property Ownership
This section requires the Secretary of State to provide an annual report to the Secretary of the Treasury, starting 60 days after the bill's enactment. This report must identify all foreign countries that prohibit U.S. citizens from purchasing or owning real estate within their borders. This report is critical as it defines the "disqualified countries" for the new tax imposed by Section 4.
Section 4(a), new Chapter 50B, Section 5000E(a)
Imposition of 50% Tax on Acquisition of United States Real Property by Disqualified Persons
This section imposes a substantial 50% tax on the amount paid for any U.S. real property acquired by a "disqualified person." This new tax is a core mechanism of the bill, aiming to deter real estate purchases from countries that do not allow U.S. citizens to own property.
Section 4(b), new Section 5000E(b)
Definitions of Disqualified Person and Disqualified Country
This section defines "disqualified person" as a citizen of a "disqualified country" (unless they are a U.S. citizen or lawful permanent resident, or reside in the U.S. due to diplomatic obligations or asylum), an entity domiciled in a disqualified country, the disqualified country itself or its agencies, or any entity 10% controlled by such persons or countries. A "disqualified country" is any country identified in the Secretary of State's report (Section 3) as prohibiting U.S. citizens from owning real estate.
Section 4(c), new Section 5000E(c)
Prorated Tax on Acquisitions by Entities Not More Than 50 Percent Controlled by Disqualified Persons
This section introduces a prorated tax for entities that are classified as "disqualified persons" due to 10% control by other disqualified persons, but where the aggregate control by disqualified persons does not exceed 50%. In such cases, the 50% tax rate is replaced with an "applicable percentage" that reflects the highest percentage of control by non-disqualified persons that would still classify the entity as disqualified. This aims to apply a proportional tax rather than a full 50% if the entity is not majority-controlled by disqualified persons.
Section 4(b)(1), new Section 6050AA
New Reporting Requirements for Disqualified Person Acquisitions
This section establishes new reporting requirements for "required reporting persons" (e.g., attorneys, title companies closing transactions) when a "presumptively disqualified person" acquires U.S. real property. These reports must include the name, address, TIN of the buyer, a description of the property, and the amount paid. The reporting person must also furnish a statement to the buyer and request an affidavit from the buyer stating they are not a disqualified person.
Defines "control" by reference to IRC Section 954(d)(3) and applies rules of Section 958(a)(2) to both foreign and domestic entities. "10-percent control" is defined by substituting "10 percent" for "50 percent" in Section 954(d)(3).
Section 4(d), new Section 5000E(d)
Why it matters:Referencing existing code sections for definitions is standard legislative practice to avoid redundancy and maintain consistency within the tax code. However, for a new tax with such a broad impact, the complexity of these definitions makes the scope of "disqualified person" difficult to ascertain without specialized knowledge.
Case for: Supporters would argue that using established tax code definitions ensures consistency and leverages existing legal interpretations, providing a solid framework for determining control.
Case against: Critics might argue that this technical referencing makes the bill opaque to the general public and even many legal professionals, hindering transparency and making compliance unnecessarily complex.
Estimated impact: This definition is fundamental to determining which entities are subject to the 50% tax, potentially impacting a vast number of corporate and partnership structures with foreign ownership.
Defines "United States real property" by modifying the existing definition of "United States real property interest" from IRC Section 897(c). It specifically alters how corporations are treated (focusing on status at acquisition time) and removes certain exceptions.
Section 4(e), new Section 5000E(e)
Why it matters:Modifying existing definitions is standard legislative practice to tailor a new law to specific policy goals without rewriting entire sections of code. However, the nuances of these modifications can be easily overlooked.
Case for: Proponents would argue that adapting an existing, well-understood definition from FIRPTA provides a familiar framework for real estate professionals and the IRS, making implementation more predictable.
Case against: Critics might contend that the modifications, particularly regarding the timing of corporate status, introduce new complexities and potential ambiguities that could lead to disputes and unintended consequences, especially for corporate transactions.
Estimated impact: This definition determines the scope of assets subject to the 50% tax, including not just direct land/buildings but potentially interests in corporations primarily holding U.S. real estate.