2011-12-08
Treas. Reg. §1.897-1(c) defines the term “United States real property interest” (“USRPI”) to mean any interest, other than an interest solely as a creditor, in either: (i) real property located in the United States or the Virgin Islands, or (ii) a domestic corporation unless it is established that the corporation was not a U.S. real property holding corporation within the period described in section 897(c)(1)(A)(ii).
Treas. Reg. §1.897-1(d)(2) provides that an interest in real property other than an interest solely as a creditor includes a fee ownership, co-ownership, or leasehold interest in real property, a time sharing interest in real property, and a life estate, remainder, or reversionary interest in such property.
The term also includes any direct or indirect right to share in the appreciation in the value, or in the gross or net proceeds or profits generated by, the real property. A loan to an individual or entity under the terms of which a holder of the indebtedness has any direct or indirect right to share in the appreciation in value of, or the gross or net proceeds or profits generated by, an interest in real property of the debtor or of a related person is, in its entirety, an interest in real property other than solely as a creditor.
The regulations include an example of where a loan that shares in the appreciation in the value of the real property is treated as a USRPI. The chart below demonstrates the example (click on the chart to enlarge the image):
