Those looking for Congress to pass lots of foreign investment tax legislation in the next year will likely be disappointed. But the tax reform effort that Republicans are currently brewing in Washington, while not aimed squarely at foreign investors, could have a huge impact.

Tax reform could be very beneficial for non-U.S. investors, particularly those interested in commercial real estate here in the United States. If Congress settles on a tax reform plan that seeks to lower U.S. corporate income tax rates — and almost any plan would — then the result could be lower taxes for foreign real estate investors as well.

Put another way, the tax reform being discussed by the president and Congressional leaders is foreign investment tax legislation, for those who understand how to structure their foreign clients properly and take advantage of the changes. Let’s explore how that works.

How Will Tax Reform Impact Foreign Investment in Real Estate?

If the tax rates paid by U.S. corporations fall, they will almost certainly fall for foreign real estate investors as well, so long as their investments are structured properly.

Foreign investment in U.S. real estate can carry heavy tax consequences, thanks to the Foreign Investment in Real Property Tax Act (FIRPTA). Tax rates can be north of 50 percent for investors, without proper planning and structuring. Yet, for those who plan and structure well, that rate can drop dramatically.

A widely used investment strategy is to use one or more U.S. corporations known as “blockers” to acquire the interest in the US real estate.   Often times foreign investors will fund the US corporation(s) with a mixture of debt and equity and the corporation in turn funds the investment in the US real estate.   The corporation “blocks” the foreign investor from having to file US returns as the corporation handles the filing requirements and pays the taxes.

Because the corporation is the taxpayer, the U.S. corporate income tax rate is at the heart of how the investment proceeds are taxed. That federal corporate tax rate is currently set at a maximum of 35 percent. But that could drop — and perhaps dramatically — if tax reform efforts gain traction.

Can Tax Reform Really Pass?

While it is impossible to predict with 100 percent accuracy what Congress will do, and the current leadership has had setbacks on major policy issues like healthcare, there are many strong indicators that tax reform is likely to get its day on the House and Senate floors.

For starters, President Donald Trump is calling it a top priority.. Trump has made several major speeches calling openly for Congress to take up tax reform. While his call is light on details, that may be an indicator that he is willing to work with Congressional Republicans to create a plan. Doing so will likely give the effort a better chance of passage.

While the president has emphasized cuts for middle-class taxpayers, which may be politically popular, the call for a reduction in corporate income taxes has never been far behind. The president even has a number in mind for the corporate rate: 20 percent.

Some experts say that may be too low to gain support. One problem with reducing the corporate tax rate is that Congress will have to find a way to pay for the cut. The lower the rate, the more difficult that exercise becomes.

However, the president’s current proposal is 20 percent, and the number is at least defensible. Canada, for example, sets its rate at 15 percent and Great Britain is moving to 17 percent. Worldwide, the unweighted average is 22.9 percent, according to the Tax Foundation.

Of course, Trump does not need a 20-percent corporate rate to chalk a victory. Even if the current 35 percent rate were cut to, say, 25 percent, that would still be a major win for Republicans — and for foreign investors in U.S. real estate, too.

Congressional Republicans, who control both chambers, are also hot to take up tax reform, and not just because they have a Republican president. Tax reform has long been on the Republican agenda in Congress. In years past, they have designated HB1 (House Bill 1) for tax reform, a bill number that is often reserved for leadership’s top priority. Look to the House to make the first move, as all tax bills must by law originate in the House Ways and Means Committee.

From a political standpoint, Republicans of all stripes know they need a big legislative victory in the next year, following the failure to pass an alternative to the Affordable Care Act. Mid-term elections, while not exactly around the corner, are well within sight for those who have to defend their Congressional seats. Generally speaking, pure foreign investment legislation is not the kind of victory Republicans need. But tax reform might just do the job.