Tax Induced Divestments and Mobility - Insights from a Kink in Capital Gains Tax Rates
17 Pages Posted: 23 Jun 2020 Last revised: 27 Jul 2022
Date Written: May 29, 2020
The dearth of evidence on the effect of capital gains taxation on real estate transactions is partly due to the difficulty in identifying affected sellers and transactions. This study explores this question by comparing investors, that have greater timing ability in the real estate market, with owner- occupants. Assets that are held for at least a year are taxed at a lower capital gains tax rate in the U.S. Property sales by homeowners that satisfy certain conditions and are held for at least two years are exempt from capital gains taxation. I exploit a discontinuity in capital gains tax rates around the one-year and two-year holding period marks and present evidence on differential tax related effects on divestment and mobility in the residential real estate market.
Keywords: capital gains tax, discontinuity, holding period, mobility
JEL Classification: G11, R2
Suggested Citation: Suggested Citation