HR 3588119th CongressIntroduced

Real Estate Reciprocity Act

Introduced: May 23, 2025

Economy & Taxes

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Real Estate Reciprocity Act seeks to reshape how foreign involvement in U.S. real estate is tracked and taxed. It does three main things: (1) expands and broadens the information reporting required of foreign persons who hold direct investments in U.S. real estate (removing thresholds and requiring returns for all such holdings); (2) creates a new retaliatory-style tax on the acquisition of U.S. real property by “disqualified persons” (defined largely by country of citizenship or country of domicile) at a rate of 50% of the purchase price, with certain exemptions and prorations; and (3) requires a yearly report from the State Department to identify foreign countries that prohibit U.S. citizens or residents from owning real estate, with those countries then designated as “disqualified” for purposes of the new tax. The bill also introduces a new reporting regime (6050AA) for acquisitions by disqualified persons and expands penalties for failing to file related information. Overall, it would increase U.S. government information gathering on foreign real estate ownership and impose a significant tax on purchases by certain foreign buyers, aiming to promote reciprocity in foreign real estate restrictions.

Key Points

1Expanded reporting for foreign real estate ownership:
2- Reforms section 6039C to require all returns relating to foreign persons holding U.S. real property interests, removing prior thresholds.
3- Applies to taxable years beginning after enactment.
4- Eliminates the dollar threshold and broadens who must file, including foreign owners who previously might have been exempt.
5Annual foreign restriction report (State-to-Treasury):
6- Within 60 days of enactment and every year thereafter, the Secretary of State must report to the Secretary of the Treasury which foreign countries prohibit U.S. citizens from purchasing or owning real estate.
7- These countries are then used to define “disqualified countries.”
8New tax on acquisitions by disqualified persons:
9- Adds Chapter 50B, imposing a tax equal to 50% of the amount paid for the United States real property acquired by a disqualified person.
10- A “disqualified person” includes:
11- Citizens of a disqualified country (excluding U.S. citizens and lawful permanent residents).
12- Entities domiciled in a disqualified country.
13- The disqualified country and its subdivisions or instrumentalities.
14- Certain entities controlled (10% or more) by such persons, with an exception for publicly traded corporations under specific conditions.
15- Exceptions:
16- Individuals residing in the U.S. for diplomatic obligations or asylum.
17- Certain publicly traded corporations (and their controlled entities) that meet criteria ensuring they are not controlled by disqualified persons.
18- Proration rules allow a percentage-based tax if disqualified persons do not control the entity beyond the threshold.
19Definitions and control rules:
20- “Disqualified country” is the country identified in the annual State Department report.
21- “Control” aligns with existing standards in 954(d)(3) and related sections; 10% ownership is used to define control for certain purposes.
22- “United States real property” uses the meaning from the FIRPTA context.
23Reporting and penalties for disqualified-purchase acquisitions:
24- Adds Sec. 6050AA (Returns Relating to Acquisition of United States Real Property by Disqualified Persons).
25- Requires reporting by the closing party in the real estate transaction (or transferor if no closing party) with details about the buyer and property and amount paid.
26- Requires notices to presumptively disqualified buyers and affirms an affidavit mechanism for determining disqualification status.
27- Penalties added to Section 6724(d) for failures to file or provide required statements, extending existing penalty provisions to cover these new reporting requirements.
28Effective date:
29- All provisions applicable to acquisitions and returns apply to taxable years or acquisitions beginning after the date of enactment.

Impact Areas

Primary group/area affected:- Foreign real estate investors and non-U.S. buyers, especially those from “disqualified countries.”- U.S. real estate closing professionals (attorneys, title companies, brokers) who would have new reporting and affidavit obligations.- United States Treasury and IRS, which would administer the new tax (50% on acquisitions by disqualified persons) and the expanded reporting regime.Secondary group/area affected:- Publicly traded corporations that might be carved out from disqualification if they meet the specified criteria, potentially affecting foreign ownership structures.- U.S. policymakers and foreign affairs entities, due to the reciprocal nature of the policy and the annual country-listing requirement.Additional impacts:- Real estate market dynamics: The 50% tax on purchases by disqualified persons could deter certain foreign investments and influence property prices or transaction structure (e.g., use of proxies or corporate layers) due to higher after-tax costs.- Compliance costs: Increased administrative burden on buyers, sellers, and closing agents to comply with new reporting and affidavit requirements, plus potential legal costs to navigate the new regime.- International relations and reciprocity concerns: The list of disqualified countries could drive retaliatory or reciprocal measures abroad, potentially affecting bilateral investment flows and sanctions policy.- Enforcement and litigation risk: Expanded penalties and new reporting requirements may lead to more IRS enforcement activity and associated litigation or disputes over interpretations, thresholds, and definitions.

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