Real Estate Bill Slams 50% Tax on Purchases by 'Disqualified' Foreign Buyers, Adds New IRS Reporting

The newly introduced Real Estate Reciprocity Act is making significant waves in how the U.S. handles foreign investment in its property market, moving to drastically increase transparency and, for certain investors, costs. The bill’s main purpose is twofold: to expand IRS reporting on foreign-owned real estate and to impose a massive new tax on property acquisitions by entities or individuals connected to countries deemed problematic by the U.S. government. These changes apply to tax years and transactions occurring after the Act becomes law, and they will affect everything from small, passive investors to major international real estate closings.

The End of Anonymous Investing: No More Small-Time Exemptions

For foreign persons who own U.S. real estate, the first major change is in IRS reporting. Currently, if your investment in U.S. property is small enough—meaning it falls below a certain dollar threshold—you generally don’t have to file a return with the IRS about those holdings. This bill wipes that threshold away (SEC. 2). This means that even if a foreign person holds a small, passive investment in a single rental unit and wasn't conducting any other business in the U.S., they will now likely be required to file a return. This change is designed to give the government a clearer picture of who owns what, but it also means a new compliance burden for thousands of small-time investors who previously flew under the radar.

The 50% Acquisition Tax: Who Pays Half?

This is the headline-grabbing section: the bill creates a brand-new federal tax equal to 50 percent of the purchase price of U.S. real property when bought by a “disqualified person” (SEC. 4). Imagine buying a $400,000 house and then having to pay an additional $200,000 to the IRS on top of the purchase price. A “disqualified person” is essentially any citizen, business, or government agency from a country that the U.S. has flagged as problematic in a report required by this same law. The definition is broad, even catching entities where these foreign parties hold just 10-percent control.

This is a severe economic penalty—not a minor fee, but a tax designed to be a massive deterrent. While there are carve-outs for individuals working in diplomacy or those granted asylum, the complexity of determining “10-percent control” in corporate structures means that many international investors will need serious legal help just to figure out if they fall under this half-price tax penalty. This provision is essentially an economic tool, leveraging the real estate market to exert pressure on specific foreign nations.

New Headaches for Real Estate Agents and Title Companies

The bill also drags everyday real estate professionals into the tax enforcement business. If you’re a closing agent, title company, or even the seller (if there’s no agent), you now have a new reporting obligation (SEC. 4). You must report the transaction to the IRS if the buyer is a “presumptively disqualified person.” The buyer is presumed disqualified unless they provide a sworn affidavit stating they are not a disqualified person. If the closing agent fails to get that affidavit, they must file a report and notify the buyer of their tax obligations. Failure to file these new reports or provide the required statements comes with penalties (Section 6724(d)). For the average closing agent, this means one more layer of mandatory paperwork and legal risk on every transaction involving a foreign buyer, transforming their role into a quasi-tax enforcer.

Reciprocity and the State Department

Finally, the bill mandates that the Secretary of State must start tracking and reporting annually on every foreign country that prohibits U.S. citizens from buying or owning real estate within its borders (SEC. 3). This is the “reciprocity” part of the Act, establishing a formal mechanism to highlight and presumably pressure countries that restrict American ownership. While this doesn't directly impose a tax, it creates the official list that the Treasury Secretary will likely use to define the “disqualified countries” that trigger the 50% acquisition tax.