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Understanding the Real Estate Provisions of Tax Reform: Motivation and Impact

James R. Follain, Patric H. Hendershott, David C. Ling

NBER Working Paper No. 2289 (Also Reprint No. r1010)
Issued in June 1987
NBER Program(s):Public Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w2289

Published: Follain, James R., Patric H. Hendershott and David C. Ling. "Understandingthe Real Estate Provisions of the Tax Act: Their Motivation and impact," National Tax Journal, Sept. 1987 pp. 363-372, Vol 40, No. 3.

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