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| Taxes and Foreign Real Estate Investment Author: Alan J. Ziobrowski, Harry McAlum, and Brigitte J. Ziobrowski Start Page: 197 Abstract: In recent years
studies examining international mixed-asset portfolios have failed to uncover any
significant benefits from foreign real estate. These papers have concentrated their focus
on foreign exchange rate risk as "the problem" with respect to foreign
investments, and therefore they sought solutions from traditional hedging tools such as
leverage, options, forward contracts and even currency swaps. This study considers
differences among countries in national income tax rates as a plausible explanation for
the interest in foreign real estate investment. Hypothetically, it may be possible for
investors to move a portion of their wealth to a foreign country and take advantage of
lower marginal tax rates. After-tax returns from mixed-asset portfolios consisting of (1)
domestic financial assets only, (2) domestic financial assets plus foreign financial
assets, and (3) domestic financial assets, foreign financial assets and foreign real
estate are evaluated. The findings indicate that there are no significant after-tax
benefits for foreign investors from investment in U.S. real estate. |
