Working Paper: NBER ID: w2289
Authors: James A. Follain; Patric H. Hendershott; David C. Ling
Abstract: Capital investment tax provisions have been changed numerous times in the last decade, with depreciation tax lives shortened in 1981 and lengthened ever since and capital gains taxation reduced in 1978 and 1981 and now increased. The first part of this paper analyzes these changes and attributes a large part of them, including the 1986 Tax Act, to changes in inflation: tax depreciation schedules and capital gains taxation that look reasonable when the tax depreciation base is being eroded at ten percent a year and an overwhelming share of capital gains is pure inflation take on a different appearance when inflation is only four percent. The remainder of the paper critiques the typical project model used to compute impacts of tax changes on real estate and report simulation results using a modified model.
Keywords: tax reform; real estate; capital gains taxation; depreciation; passive losses
JEL Codes: H25; H71; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation rates (E31) | tax provisions (H20) |
| tax reform act of 1986 (H20) | tax landscape for real estate (K25) |
| rising inflation and interest rates in the late 1970s and early 1980s (E65) | tax reform act of 1986 (H20) |
| tax reform act of 1986 (H20) | rental costs (R21) |
| tax reform act of 1986 (H20) | attractiveness of real estate investments (R33) |
| passive loss provisions (H24) | investment in real estate (R33) |
| tax reform act of 1986 (H20) | quantity of depreciable real estate investments (G31) |
| tax reform act of 1986 (H20) | demand for owner-occupied housing (R21) |