Trading and the Tax Shelter Value of Depreciable Real Estate
28 Pages Posted: 5 Jul 2004 Last revised: 13 Feb 2023
Date Written: 1984
Abstract
For well-diversified investors in depreciable real estate, the trading decision may be made with the sole objective of maximizing the property's depreciation tax shelter net of all capital gain taxes and transaction costs.This paper develops a dynamic programming model in which the optimal trading strategies and depreciation methods of all investors in a property are simultaneously determined. The effects of inflation, depreciation, recapture and choice of depreciation method are analyzed, and the costs of suboptimal trading are measured. The model is applied to both conventional residential and commercial income properties under post-ERTA tax rules. At single digitinflation rates, properties are traded multiple times, and the costs of suboptimal trading are significant.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Degree of Fiscal Illusion in Interest Rates: Some Direct Estimates
By Joe Peek and James A. Wilcox
-
The Impacts on Capital Allocation of Some Aspects of the Economic Recovery Tax Act of 1981
-
Prospective Changes in Tax Law and the Value of Depreciable Real Estate
-
Understanding the Real Estate Provisions of Tax Reform: Motivation and Impact
By James R. Follain, Patric H. Hendershott, ...