Real Estate Reciprocity Act

Bill Number

H.R. 3588

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-05-23: Referred to the Committee on Ways and Means, and in addition to the Committee on Foreign Affairs, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2025-06-10T22:44:55Z

AI-Generated Summary

Purpose of the Legislation

The Real Estate Reciprocity Act aims to promote fairness in international real estate ownership by requiring the reporting of all real estate purchases in the United States by non-citizens to the Internal Revenue Service (IRS). It also imposes a significant tax on such purchases by individuals or entities from countries that prohibit or restrict U.S. citizens from owning real estate abroad, encouraging reciprocal treatment for American buyers.

Key Provisions

• Expanded Reporting for Foreign Investments: Amends the Internal Revenue Code (IRC) to mandate that foreign persons file returns with the IRS for any direct investments in U.S. real property interests if they are not engaged in a U.S. trade or business. This removes previous dollar-value thresholds that limited reporting requirements.
• Annual Report on Foreign Restrictions: The Secretary of State must submit a report to the Secretary of the Treasury within 60 days of enactment (and annually thereafter) identifying countries that ban or limit U.S. citizens' ownership of real estate. These "disqualified countries" form the basis for tax penalties.
• 50% Tax on Acquisitions by Disqualified Persons: Introduces a new IRC chapter imposing a 50% tax on the purchase price of U.S. real property acquired by "disqualified persons," defined as:
• Citizens of disqualified countries (excluding U.S. citizens or lawful permanent residents).
• Entities domiciled in disqualified countries.
• Governments or agencies of disqualified countries.
• Entities controlled (at least 10%) by the above, with prorated taxes (based on ownership percentage) for partial control.

Exceptions include diplomats, asylees residing in the U.S., and certain publicly traded U.S. corporations not controlled by disqualified persons.

• New Reporting and Compliance Rules:
• Transaction closers (e.g., attorneys or title companies) must report details of purchases by "presumptively disqualified persons" (anyone without an affidavit confirming they are not disqualified) to the IRS, including buyer info, property description, and price.
• Buyers must provide affidavits under penalty of perjury to avoid presumptive status.
• Penalties apply for failure to report or provide statements, integrated into existing IRC penalty provisions.
• Effective Dates: Reporting changes apply to tax years starting after enactment; tax and new reporting rules apply to acquisitions in tax years beginning after enactment.

Significant Changes to Existing Law

• Removes Reporting Thresholds: Previously, under IRC Section 6039C, foreign persons only reported investments exceeding certain dollar amounts; now, all such investments by non-business foreigners must be reported, broadening IRS oversight.
• Introduces Targeted Tax Penalty: Adds a new excise tax (IRC Chapter 50B) specifically on real property acquisitions, distinct from general income or property taxes. This is the first federal tax explicitly tied to reciprocity for foreign real estate restrictions.
• Enhances Enforcement Mechanisms: Creates mandatory affidavits and third-party reporting (e.g., by title companies), similar to existing forms like those for foreign bank accounts (FBAR), but tailored to real estate closings. Integrates penalties into IRC Section 6724 for consistency.

Potential Impacts

• On Government Agencies: Increases workload for the IRS (more returns and enforcement), Department of the Treasury (reviewing reports), and Department of State (annual reporting). Could generate significant revenue from the 50% tax but require new administrative resources.
• On Citizens and Residents: U.S. citizens and lawful permanent residents are unaffected directly, but the law may indirectly benefit them by deterring foreign dominance in real estate markets, potentially stabilizing prices in high-demand areas.
• On International Relations: May strain ties with disqualified countries by imposing economic penalties, prompting diplomatic negotiations or retaliatory measures. Could encourage bilateral agreements to remove restrictions on U.S. ownership abroad, fostering reciprocity.

Main Stakeholders Affected

• Foreign Buyers and Entities: Non-U.S. citizens or companies from restricted countries face high taxes and reporting burdens, potentially discouraging investments.
• Real Estate Industry: Title companies, attorneys, and sellers must handle new affidavits, reporting, and compliance, increasing transaction costs and legal risks.
• U.S. Government: IRS, Treasury, and State Department gain enforcement roles; taxpayers (via revenue) may see indirect benefits.
• U.S. Real Estate Owners/Sellers: Could see fewer foreign buyers from targeted countries, affecting market dynamics in sectors like residential or commercial property.

Notable Legal, Constitutional, or Political Implications

• Legal: The tax is structured as an excise tax on acquisitions, which courts have upheld as constitutional (e.g., similar to transfer taxes). However, definitions of "control" and "disqualified persons" borrow from existing IRC rules (e.g., Sections 897 and 954 on foreign investments), ensuring consistency but potentially inviting challenges over vague terms like "control" (defined as 50% ownership, or 10% for certain thresholds).
• Constitutional: Raises questions under the Equal Protection Clause or Due Process if applied unevenly to foreigners, though Congress has broad authority over taxation and immigration-related commerce. No direct impact on free speech or other rights.
• Political: Positions the U.S. as promoting "reciprocity" in global markets, appealing to concerns over foreign (e.g., Chinese) influence in U.S. real estate. Could spark debates on protectionism versus free trade, especially if reports highlight allies like Canada or the EU; implementation might require international coordination to avoid trade disputes.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Harrigan, Pat [R-NC-10]

Recent Actions

• 2025-05-23: Referred to the Committee on Ways and Means, and in addition to the Committee on Foreign Affairs, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-05-23: Referred to the Committee on Ways and Means, and in addition to the Committee on Foreign Affairs, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-05-23: Introduced in House
• 2025-05-23: Introduced in House

Bill Versions

• Real Estate Reciprocity Act — issued 2025-05-23 — PDF (11 pages)