On October 20, 2025, the Treasury and IRS released proposed regulations impacting domestically controlled Real Estate Investment Trusts (REITs) and foreign investment in U.S. real estate under the Foreign Investment in Real Property Tax Act (FIRPTA). The 2024 regulations had introduced a U.S. Blocker Look-Through Rule, which required REITs to trace the ownership of U.S. blocker corporations to determine domestic versus foreign status. This rule created operational complexity and uncertainty for REITs, investors, and real estate professionals.
The new proposed regulations remove the look-through requirement. Under the proposal:
U.S. blockers are treated as fully domestic owners, even if foreign persons hold them.
A REIT is considered domestically controlled if more than 50 percent of its stock is held by U.S. persons, including U.S. blockers.
Taxpayers may apply the rules retroactively to transactions occurring on or after April 25, 2024.
For example, a REIT owned 51 percent by a U.S. blocker and 49 percent by a foreign investor is domestically controlled.
The foreign investor’s 49 percent stake is not subject to FIRPTA, while the U.S. blocker is taxed as a domestic corporation.
Other aspects of the 2024 regulations remain unchanged, including:
Look-through rules for partnerships and trusts
Special rules for REITs and RICs that own REIT stock
Treatment of qualified foreign pension funds as foreign persons
The proposed regulations are intended to simplify compliance, provide clarity in determining domestically controlled REIT status, and encourage foreign investment in U.S. real estate.
