Category: Tax Policy

Cost Recovery Reform to Spur New Housing Supply Gains Traction in Washington

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A new report from the influential Center for American Progress (CAP) suggests that allowing immediate expensing for new multifamily rental housing could spur a major increase in multifamily construction and bring down housing costs over the next decade. (CAP Report, March 11)

Report Findings

  • The CAP report found that immediate expensing for new multifamily rental housing, with a per-unit cap of $150K-$250K, could spur the creation of 706,000 to 1.06 million new homes over 10 years, at a cost of up to $206 billion. (PoliticoPro, March 12)
  • The researchers claim that faster cost recovery would lower the cost of capital, improve project cash flow, and help move more rental developments from infeasible to financeable.
  • The research also shows that full or partial expensing could increase housing supply at a lower cost per unit than many direct subsidy programs. (Tax Policy Center, March 17)
  • The researchers’ preferred approach would cap immediate expensing at $150,000 per unit, paired with a refundable credit option to address the fact that many real estate investors are tax-exempt or otherwise unable to use additional tax deductions. They estimate the proposal could produce roughly 755,000 new homes over a decade for about $154 billion.
  • The proposal also parallels last year’s One Big Beautiful Bill Act, which provided full expensing for new factories. The Tax Foundation called that change a step forward, but said its economic benefits would be limited because it is temporary and narrowly targeted. (Tax Foundation, Oct. 27, 2025)
  • The Tax Foundation published a reply to the CAP report that generally supports the approach while outlining a variety of cost recovery reform options for policymakers to consider, including: neutral cost recovery, and investment tax credit, tax deduction transferability, shorter asset lives, and partial expensing. (The Tax Foundation, Mar. 23)
  • The recent reports by the two influential think tanks are further evidence that policymakers are open to new approaches aimed at addressing housing affordability challenges.

On the Hill

  • Sen. Lisa Blunt Rochester (D-DE) introduced the Rental Housing Investment Act on March 12, which would allow builders to immediately deduct a portion of new multifamily construction costs rather than recover them over 27.5 years. (Sen. Rochester News Release, Mar. 12)
  • The bill would allow builders to immediately deduct up to $150,000 per unit in construction costs, with an enhanced deduction of up to $250,000 per unit for projects that include income-restricted units under long-term attainability commitments. The incentive would apply only to newly constructed multifamily rental housing. (USA Today, Mar. 11)
  • The measure is intended to support efforts to expand rental supply and address affordability pressures by improving the tax treatment of new multifamily development, as high interest rates and rising construction costs continue to weigh on housing production.

Property Conversions

  • Office conversions now account for nearly half of all future adaptive reuse projects. (CRE Daily, Mar. 25)
  • RentCafe reported that 90,300 apartments were in the conversion pipeline nationwide at the start of 2026, up 28% from 70,600 a year earlier, as the trend continues to gain momentum in both major and mid-sized markets. (RentCafe, Mar. 24)
  • New York leads the pipeline, followed by Washington, D.C., and Chicago. (Bisnow, March 26 | Cushman & Wakefield, Feb. 2026)
  • New research from Pew and Gensler highlights office-to-residential conversions, particularly lower-cost co-living microapartments in underused downtown buildings.  (Pew Research, Mar. 24)
  • Pew found the model could cut per-unit development costs by more than half in some markets and deliver nearly four times as many affordable homes per subsidy dollar compared to traditional studio development. (Pew Research, Mar. 24)
  • RER has strongly backed the bipartisan Revitalizing Downtowns and Main Streets Act of 2025 (H.R. 2410), which would create a market-based tax incentive for converting older commercial buildings to residential use to help expand housing and support the recovery of downtowns and neighborhoods still feeling the effects of the pandemic. (Roundtable Weekly, Mar. 2025)

RER will continue working with policymakers to advance tax and regulatory policies that encourage property conversions, reduce barriers to development, and help expand the nation’s housing supply.

IRS Relief Expands Real Estate’s Access to Bonus Depreciation Tax Benefit

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IRS building in Washington, DC

The IRS and Treasury Department this week issued new guidance allowing real estate companies to withdraw prior elections that had prevented many from fully benefiting from the One Big Beautiful Bill Act’s (OB3 Act) restored 100% bonus depreciation provision. Revenue Procedure 2026-17 outlines how taxpayers may revoke those elections under Section 163(j), clearing the way for broader use of immediate expensing across commercial real estate. (Bloomberg, March 18)

Why It Matters

  • The Real Estate Roundtable (RER) has urged Treasury to allow real estate owners who previously elected out of strict limitations on the deductibility of business interest to withdraw or amend those elections. This would enable them to fully benefit from the OB3 Act’s restored bonus depreciation benefit. (Roundtable Weekly, Feb. 6)
  • Under the Tax Cuts and Jobs Act of 2017 (TCJA), an electing real property trade or business (RPTOB) is exempt from the Section 163(j) limit on business interest deductibility, but must use the alternative depreciation system to recover the cost of its investment. As a result, electing RPTOBs are ineligible for bonus depreciation on leasehold and nonresidential interior property improvements.
  • Beginning in 2022, the Section 163(j) business interest limitation tightened, and starting in 2023, bonus depreciation began to phase out. Those two changes led many real estate owners to make the RPTOB election.
  • The OB3 Act reversed both provisions by restoring the original TCJA parameters for Section 163(j) and permanently extending 100% bonus depreciation. While that was a major positive development for new real estate investment, it left existing property owners locked into irrevocable RPTOB elections made under prior law.
  • Revenue Procedure 2026-17 addresses that problem by allowing taxpayers to retroactively withdraw an RPTOB election for taxable years 2022, 2023, or 2024. If a real estate owner withdraws the election under the revenue procedure, the owner is treated as if the election had never been made.
  • This change makes 100% bonus depreciation available to a much larger share of U.S. commercial real estate, ensures that property owners are not penalized for elections made under a tax regime that no longer applies, and should support additional capital formation.
  • The revenue procedure also provides guidance on the administrative steps for withdrawing an election, partnership filing requirements, and procedures for amending returns for intervening years.

RER Advocacy

  • In an Oct. 17, 2025, letter, RER wrote to Treasury urging guidance allowing real estate businesses to amend or revoke prior RPTOB elections to ensure the OB3 Act’s restored 100 percent bonus depreciation provision supports real estate investment, job creation, and economic growth. (Roundtable Weekly, Feb. 6)
  • The letter emphasized that clear implementing rules will help bonus depreciation “facilitate the modernization and repurposing of real estate assets,” including underutilized offices, shopping centers, hotels, and mixed-use properties. (Roundtable Weekly, Oct. 17)

Treasury’s action addresses a key transition issue created by the new law. It helps ensure that restored bonus depreciation can work as intended across a broader share of commercial real estate investment.

In the News: Roundtable TPAC Chair Urges Treasury to Modernize Foreign Investment Tax Rules, Preserve U.S. Access to Foreign Capital

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A new Bloomberg op-ed by RER Tax Policy Advisory Committee Chair Joshua Parker (Founder, Chairman and Chief Executive Officer, Ancora) reinforces The Real Estate Roundtable’s (RER) push for Treasury to modernize Section 892 regulations without discouraging sovereign investment in U.S. real estate and other long-term assets. (Bloomberg Tax, March 11)

Op-Ed Highlights

RER Tax Policy Advisory Committee Chair Joshua Parker
  • Section 892 of the tax code generally exempts investment income earned by foreign governments, including sovereign wealth funds, from U.S. income tax. The 892 exemption does not apply, however, if the foreign government effectively controls the U.S. business or is deemed to be engaged in a commercial activity.
  • Parker writes that Treasury’s regulatory effort is “constructive and necessary,” but cautions that the rules must distinguish between legitimate investor stewardship and effective control of a business. (Bloomberg Tax, March 11)
  • The op-ed argues that Section 892 needs to catch up with major changes in capital markets, including the growth of private credit, direct lending, and co-investment strategies that were not significant features of the market when the statute was enacted.
  • Parker emphasizes that policymakers should not “sweep fundamentally different forms of investor participation into the same regulatory framework.
  • Responsible investors “must exercise fiduciary oversight, manage risk, and ensure disciplined capital deployment,” Parker adds. Customary minority protections such as consent rights, veto rights, and approval of extraordinary actions are forms of stewardship, not day-to-day business control.

Why It Matters

  • Since 2011, foreign governmental investors have invested more than $100 billion in U.S. commercial real estate. (Roundtable Weekly, Feb. 13)
  • Foreign capital invested in the U.S. has supported housing supply, infrastructure development, research facilities, and place-based economic growth. (Bloomberg Tax, March 11| RER Letter, Feb. 12)

RER Advocacy

  • In February, RER submitted a comment letter to Treasury Secretary Scott Bessent on the Section 892 regulations and proposed rules, urging clear grandfathering rules and changes to prevent disruptions to sovereign investment in U.S. real estate. (Letter, Feb. 12 | Roundtable Weekly, Feb. 27)

RER will continue engaging Treasury to ensure the final rules provide clarity for investors while avoiding unintended disruptions to U.S. real estate capital formation.

Roundtable Proposes Revenue Procedure to Address Opportunity Zone Transition

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The Real Estate Roundtable (RER) on March 6 submitted proposed guidance to the U.S. Department of the Treasury and urged adoption of safe harbor rules to support continued investment in Opportunity Zones as the original OZ census tract designations phase out under the One Big Beautiful Bill Act (OBBBA). (Letter, Revenue Procedure, March 6)

Why It Matters

  • OZ incentives have helped drive private investment, job creation, and redevelopment in underserved communities since the enactment of the Tax Cuts and Jobs Act of 2017.
  • The approaching expiration of the original OZ designations creates uncertainty for long-term investments and development projects already in progress.
  • For example, it is unclear how opportunity funds and OZ businesses can continue satisfying location-based statutory and regulatory compliance tests after an original tract designation expires.
  • The uncertainty is having a chilling effect on OZ investment, discouraging new housing development and other productive real estate activity from moving forward.
  • RER’s proposal responds to a structural gap in current guidance and offers specific language that Treasury and the IRS could use to establish a safe harbor for qualifying investments, including guardrails to prevent abusive transactions while protecting capital formation. (Letter, Revenue Procedure, March 6)
  • Transitional administrative guidance would support continued housing construction, economic growth, and community revitalization as the program shifts to the permanent framework enacted under OBBBA.

RER Recommendations

  • To resolve this issue, the draft Revenue Procedure would establish a safe harbor under which an expired tract would be treated as a “Grandfathered QOZ” for specified compliance purposes unless a disqualifying event occurs.
  • Qualifying funds and businesses could continue meeting statutory requirements if projects began or satisfied written planning and capital deployment standards before expiration.
  • A clearly defined safe harbor would unlock frozen capital and, combined with the beneficial OZ reforms enacted in OBBBA, support construction of new and affordable housing and long-term economic development in disadvantaged communities.

RER Advocacy

  • In December 2025, RER separately urged Treasury and the IRS to provide expedited guidance warning that unresolved tax treatment questions could significantly reduce OZ investment and capital formation in 2026. (Roundtable Weekly, Dec. 19)
  • The Dec. 2025 letter emphasized that uncertainty surrounding expiring census tract designations could delay projects, discourage new fund formation, and undermine housing production and community development efforts. (Letter, Dec. 19)

The proposed guidance was developed by the RER’s Opportunity Zone Working Group. Principal drafters included KPMG’s Orla O’Connor and Michael McMahon, Deloitte’s Gary Hecimovich and Adam Wallwork, and Greenberg Traurig’s Sandy Presant. RER will continue encouraging Treasury and the IRS to issue timely guidance that sustains Opportunity Zone investment and keeps housing and economic development projects on track in underserved communities.

Treasury Signals Revisions for Proposed Section 892 Rules After Industry Feedback

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The U.S. Department of the Treasury is revising its proposed Section 892 regulations after the investment and real estate industries raised concerns that aspects of the framework could raise their cost of capital by deterring passive investment by foreign governments, including sovereign wealth funds.

State of Play

  • A Treasury Department spokesperson told Bloomberg Law the agency is “revising the proposal to address key issues and ensure it supports stable, long-term capital flows,” citing feedback from the investment and real estate industry, including The Real Estate Roundtable (RER). (Bloomberg Law, Feb. 20)
  • The proposed Section 892 regulations (REG-101952-24) address two critical questions that can trigger U.S. tax liability: when a foreign government has effective control of an entity engaged in commercial activities, and when an acquisition of debt by a foreign government is considered to be commercial activity.
  • Treasury tax policy officials also indicated the proposed regulations—if finalized—will not be applied retroactively to existing transactions and structures. (Tax Notes, Feb. 23)

RER Advocacy

  • Earlier this month, RER submitted a comment letter to Treasury Secretary Scott Bessent on the Section 892 final and proposed rules, urging clear grandfathering rules and changes to prevent disruptions to sovereign investment in U.S. real estate. (Letter, Feb. 12)
  • The letter recommended targeted fixes, including clarifying that customary minority protections do not create effective control; confirming that withholding agents may rely on foreign government self-certifications; and adding safe harbors (including for certain distressed-debt modifications).
  • RER’s recommendations would ensure U.S. real estate owners and developers can continue to mobilize capital from foreign government sources while preserving Section 892’s fundamental distinction between tax-exempt investment activities and taxable commercial activities. (Roundtable Weekly, Feb. 13)

RER’s Tax Policy Advisory Committee (TPAC) Advocacy

  • The letter was developed by TPAC’s Section 892 Working Group, which includes representatives from a diverse group of foreign investors, U.S. real estate sponsors, and outside advisors.The principal drafter was TPAC member and Skadden partner Nickolas Gianou.

RER will continue engaging Treasury to ensure the final Section 892 regulations do not discourage sovereign capital that supports U.S. real estate investment and jobs.

First Circuit Hears Denham Oral Argument as SECA Limited Partner Fight Continues

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The legal dispute over the tax code’s limited partner exception from self-employment (SECA) taxes remains very much alive, with the issue now in various stages of litigation before three federal appellate courts. The IRS is asserting that a limited partner must be a passive investor.

Denham Oral Arguments

  • On Feb. 5, the First Circuit heard oral argument in Denham Capital Management LP, et al. v. Commissioner (No. 25-1349), while a related appeal in Soroban Capital Partners LP v. Commissioner is pending in the Second Circuit. The Fifth Circuit also recently issued a significant decision in Sirius Solutions, L.L.L.P. v. Commissioner (No. 24-60240). (Roundtable Weekly, Jan. 30)
  • The First Circuit heard oral arguments in Denham before Chief Judge David Barron, Judge Kermit Lipez, and Judge Lara Montecalvo Rikelman. Most of the argument focused on jurisdictional issues, which could allow the court to resolve the case without reaching the merits.
  • On the merits, the panel posed tough questions to Denham and the IRS. The discussion focused on the meaning of a limited partner in 1977 when the exception was enacted, prior case law, relevant dictionary definitions, the Revised Uniform Limited Partnership Act, and the provision’s legislative history.
  • In the course of the argument, Denham emphasized state law developments leading up to the 1977 amendments and, notably, cited The Real Estate Roundtable’s (RER) amicus brief in support of its position. (RER Amicus Brief, Aug. 15; Roundtable Weekly, Sept. 12, 2025)

Why It Matters

  • Income-producing real estate is predominantly owned and operated through partnerships, and the IRS’s litigation campaign creates risk for long-standing structures relied on by real estate and other pass-through businesses.
  • A circuit split among the First, Second, and Fifth Circuits could accelerate Supreme Court review of the issue.

RER Advocacy

  • RER is actively engaged across the circuits to oppose the IRS’s restrictive “passive investor” approach:
  • First Circuit (Denham): RER filed an amicus brief in August 2025 supporting the taxpayer’s challenge to the Tax Court’s judge-made “passive investor” test and explaining the long-standing reliance of real estate partnerships on state-law limited partner status.
  • Second Circuit (Soroban): RER filed an amicus brief in December 2025 urging reversal of the Tax Court’s Soroban approach and warning that a new federal “passivity” overlay would inject uncertainty and increase tax burdens for partnership-based businesses. (Roundtable Weekly, Dec. 19, 2025)
  • Fifth Circuit (Sirius): RER filed an amicus brief in 2024, and the Fifth Circuit’s Jan. 16, 2026 decision rejected the Tax Court’s passivity-focused framework in favor of a status-based analysis tied to limited liability.  (Roundtable Weekly, Jan. 30)

What’s Next

  • The First Circuit’s decision in Denham could turn on jurisdictional challenges, but the merits questions at argument underscored that the government’s “passive investor” theory remains contested and unstable across the courts.

RER will continue pressing its position through amicus advocacy to protect the flexibility inherent in partnership tax rules and preserve the long-standing tax exemption for limited partners.

Roundtable Urges Treasury to Modify Proposed Regulations on Sovereign Investment in U.S. Real Estate

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The Real Estate Roundtable (RER) submitted a comment letter to Treasury Secretary Scott Bessent on Treasury’s recently issued Section 892 regulations and related proposed rules that could materially affect sovereign investment in U.S. real estate. (Letter, Feb. 12)

Why It Matters

  • Foreign investment, including investment by sovereign wealth funds, foreign pension funds, and other government entities, is a critical source of financing for capital-intensive U.S. real estate projects.
  • Since 2011, foreign governmental investors have invested over $100 billion in U.S. commercial real estate.
  • “This patient and long-duration foreign capital drives ambitious and transformative investments that create new housing supply, lower housing costs, and spur job growth and economic opportunity in American cities,” wrote Roundtable President and CEO Jeffrey DeBoer.
  • Section 892 generally exempts from U.S. tax certain dividend and interest income—and gains on sales of securities—earned by foreign governments, unless the income is treated as commercial activity income or income from a controlled commercial entity. The provision traces back to 1917.
  • On Dec. 15, Treasury released final Section 892 regulations and issued new proposed regulations addressing two key questions: (1) when a foreign government has effective control of an entity engaged in commercial activities, and (2) when an acquisition of debt is considered commercial activity.
  • These issues have important consequences for existing and future sovereign investment in U.S. real estate.

RER Recommendations

  • The RER letter commends Treasury for its general approach and for clarifying specific issues. At the same time, RER expressed concerns regarding aspects of the proposed regulations that could disrupt inbound real estate investment and raise the cost of capital for U.S. real estate projects.
  • For example, the proposed rules can be read to restrict foreign governmental investors’ ability to secure certain investor protections, such as veto rights over major investment and financing decisions. Such restrictions could deter and discourage foreign governments from investing in the United States.
  • The letter highlights these concerns while offering specific solutions that Treasury could incorporate in its final rulemaking. These include:
  • Clarifying that customary minority investor veto rights do not create effective control;
  • Grandfathering existing investments;
  • Confirming U.S. withholding agents can rely on self-certifications from foreign governments;
  • Clarifying that certain modifications of distressed debt are not commercial activity; and
  • Establishing debt-related safe harbors for specific situations.
  • In short, RER’s recommendations would ensure U.S. real estate owners and developers can continue to mobilize capital from foreign government sources while preserving Section 892’s fundamental distinction between tax-exempt investment activities and taxable commercial activities.

RER’s Tax Policy Advisory Committee (TPAC) Advocacy

  • The letter was developed by TPAC’s Section 892 Working Group, which includes representatives from a diverse group of foreign investors, U.S. real estate sponsors, and outside advisors. The principal drafter was TPAC member and Skadden partner Nickolas Gianou.

The current Administration and Treasury leadership have emphasized the importance of passive foreign investment to U.S. job creation and growth. Treasury has not yet indicated when it anticipates finalizing the new Section 892 proposed regulations.

Treasury Considering Extension of Bonus Depreciation to Certain Existing Real Estate Investments

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The U.S. Treasury Department is reviewing real estate industry concerns that many firms may be locked out of the One Big Beautiful Bill (OB3) Act’s restored 100 percent bonus depreciation because of prior elections made to opt out of the Section 163(j) business interest limitation. (Bloomberg, Feb. 3)

State of Play

  • The restoration of 100 percent expensing for capital expenditures, including tenant and nonresidential property improvements, is among the most significant provisions in the OB3 Act.
  • Treasury tax policy advisor Dan Penrith acknowledged the concern at the American Bar Association Tax Section’s midyear meeting in San Diego. Penrith stated that the issue is “on our radar, it’s something that we’re thinking about,” signaling potential openness to targeted administrative relief. (Bloomberg, Feb. 3)
  • The Real Estate Roundtable (RER) has urged Treasury guidance to allow “real property trades or businesses (RPTOBs)” that previously elected out of Section 163(j) to withdraw or amend that election—so they can fully benefit from the OB3 Act’s restored bonus depreciation for eligible property improvements. (Roundtable Weekly, Oct. 17)

Why It Matters

  • The RPTOB election historically enabled full interest deductibility, but required the alternative depreciation system, making taxpayers ineligible for bonus depreciation.
  • Without additional guidance, many taxpayers may not qualify for bonus depreciation on property improvements, despite Congress’s intent to spur investment through 100 percent expensing.
  • There is precedent for allowing flexibility. During the pandemic, IRS Revenue Procedure 2020-22 provided an opportunity for certain taxpayers to withdraw a prior Section 163(j)(7)(B) election in response to CARES Act changes. (Revenue Procedure 2020-22)
  • As RER’s SVP & Counsel Ryan McCormick told Bloomberg Tax: “We’re seeking similar flexibility,” adding that it’s “really important for the future.” (Bloomberg, Feb. 3)

Roundtable Advocacy

  • In an Oct. 17, 2025, letter, RER wrote to Treasury urging guidance to ensure the OB3 Act’s restored 100 percent bonus depreciation provision supports real estate investment, job creation, and economic growth.
  • The letter emphasized that clear implementing rules will help bonus depreciation “facilitate the modernization and repurposing of real estate assets,” including underutilized offices, shopping centers, hotels, and mixed-use properties. (Roundtable Weekly, Oct. 17)

RER will continue engaging Treasury as it considers next steps to ensure the OB3 Act’s bonus depreciation provisions deliver on their intended investment and growth impact.

Fifth Circuit Reverses Tax Court, Sides with Taxpayer and Roundtable in Limited Partnership Tax Dispute

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The U.S. Court of Appeals for the Fifth Circuit issued a 2-1 decision in Sirius Solutions, L.L.L.P. v. Commissioner (No. 24-60240) on Jan. 16, restricting the federal government’s effort to extend self-employment taxes to a broad range of limited partners in limited partnerships. The Real Estate Roundtable (RER) submitted an amicus brief in the case, and the Court’s ruling closely aligns with the RER’s position.

Court Ruling

  • Since 1977, the tax code has exempted limited partners from self-employment taxes. In recent years, the IRS has asserted a new and more restrictive test to determine whether a limited partner qualifies for the exclusion.
  • The Fifth Circuit held that the Section 1402(a)(13) “limited partner” exception from self-employment (SECA) tax applies to a partner in a state-law limited partnership who has limited liability. (TaxNotes, Jan. 27)
  • The ruling vacates and remands the Tax Court decision that followed Soroban Capital Partners LP v. Commissioner (No. 25-2079), and applied a “functional analysis” of partner roles and activities to determine whether the SECA exclusion applies. (Sullivan Cromwell, Jan. 27)
  • The Fifth Circuit rejected that approach and held that “limited partner” in Section 1402(a)(13) is a status-based, state-law concept tied to limited liability, not an activity test.
  • The decision is the first appellate ruling to reach the issue and reverse the Tax Court’s restrictive interpretation. (Reuters, Jan. 21)
  • This ruling has set a precedent for future SECA tax cases, with significant consequences for real estate and other industries that use limited partnerships for business purposes.

Roundtable Advocacy

  • In August 2024, RER submitted an amicus brief to the Fifth Circuit. The brief argued that the IRS’s interpretation was flawed and inconsistent with decades of state law recognizing that limited partners can provide services while retaining limited partner status. (Roundtable Weekly, Sept. 6, 2024)
  • The brief emphasized that pre-1977 state court decisions and the IRS’s own 1994 proposed regulations contradict the government’s position that limited partners must be passive to avoid SECA taxes.
  • RER argued the Tax Court’s “passive investor” test is found nowhere in the statute and reflects a misunderstanding of partnership law that real estate and other businesses have relied on for decades.
  • RER has continued this advocacy across the circuits. In Dec. 2025, RER filed an amicus brief with the Second Circuit in Soroban, challenging the IRS’s restrictive interpretation of the “limited partner exception” under Section 1402(a)(13). (Roundtable Weekly, Dec. 19, 2025)
  • This successful outcome in the Sirius case supports RER’s position and could reduce momentum for formal tax guidance that would broaden the reach of SECA taxes.

What’s Next

  • Related appeals are pending in the First Circuit (Denham) and Second Circuit (Soroban). (TaxNotes, Jan. 27)
  • Divergent outcomes could create a circuit split and increase the odds of Supreme Court review. (Skadden Arps, Jan. 27)
  • The First Circuit is scheduled to hear oral arguments in Denham on Feb. 5. (TaxNotes, Jan. 27)

RER remains committed to protecting entrepreneurs’ ability to flexibly organize in partnerships and other pass-through entities that promote capital formation, risk-taking, and economic growth, and it will remain engaged as the SECA dispute moves forward.

OECD Carves Out U.S. Companies from Global Minimum Tax, Reducing Risk of Retaliatory Taxes on Foreign Real Estate Investors

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After months of negotiations, global tax talks produced an agreement at the Organization for Economic Co-operation and Development (OECD) that exempts U.S.-headquartered companies from Pillar Two’s global minimum tax and reduces the risk of retaliatory taxes that could have affected foreign investment in commercial real estate. (ABCNews, Jan. 6)

State of Play

  • Nearly 150 jurisdictions agreed to new Pillar Two guidance, including a long-sought “side-by-side” safe harbor that shields U.S. multinationals from key global minimum tax rules. U.S. companies will remain subject only to existing U.S. global minimum taxes. (Reuters, Jan. 6)
  • The Trump administration renegotiated the framework in June after congressional Republicans removed a proposed retaliatory tax—Section 899—from the One Big Beautiful Bill Act (OB3 Act).
  • The agreement formally recognizes U.S. tax sovereignty over the worldwide operations of American companies, while preserving other countries’ authority to tax business activity within their borders. (OECD Press Release, Jan. 5)
  • Senate Finance Chairman Mike Crapo and House Ways and Means Chairman Jason Smith praised the outcome but warned that Congress remains prepared to revive retaliatory tax measures if countries delay or fail to implement the agreement. (Sen. Crapo and Rep. Smith Press Release, Jan. 5)
  • They emphasized that Republicans rolled back those measures earlier this year only after the G7 publicly committed to respecting U.S. tax sovereignty—and said that warning “remains today” as implementation begins.
  • Treasury Secretary Scott Bessent called the agreement “a historic victory” that protects American workers and businesses from extraterritorial taxation. (Press Release, Jan. 5)

Why It Matters

  • During negotiations for the OB3 Act, RER and other industry groups warned that Section 899 would deter foreign investment, weaken capital formation, increase borrowing costs, and dampen property values. (Roundtable Weekly, Sept. 12)
  • Section 899 would have generated significant uncertainty for foreign real estate investors, with applicable tax rates potentially shifting year to year or across administrations.
  • The provision would have extended to a wide range of passive investors—including sovereign wealth funds, pension funds, high-net-worth individuals, and insurance companies—with the economic burden often falling on U.S. borrowers under typical loan covenants that shift tax-law risk to domestic parties.

RER’s Tax Policy Advisory Committee (TPAC) will review implications for U.S. real estate investment and global capital flows at the State of the Industry Meeting on Jan. 22, 2026, in Washington, D.C.