Portfolio Interest is a type of interest that is exempt from U.S. federal income tax when received by a foreign person (non-U.S. investor). It is typically derived from specific investment types, like loans or debt instruments, that meet certain requirements. For the interest to qualify as portfolio interest, the foreign person usually cannot own 10% or more of the equity (or voting stock) of the payer and cannot be engaged in a business through a U.S. office or other fixed place of business to which the interest is effectively connected.

The portfolio interest exemption was established to encourage foreign investment in the U.S. by removing the potential tax burden on certain interest income for foreign investors.

In the context of real estate, a foreign investor might be involved in financing operations, and if the conditions are met, the interest they receive could be classified as portfolio interest and therefore be exempt from U.S. federal income tax. Always consult with a tax professional when dealing with specific tax-related issues or scenarios.