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  5. Real Estate Taxation
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Real Estate Taxation

Paper Session

Tuesday, Jan. 5, 2021 3:45 PM - 5:45 PM (EST)

Hosted By: American Real Estate and Urban Economics Association
  • Chair: David Albouy, University of Illinois

Tax Induced Divestments - Evidence From a Kink in Capital Gains Tax Rates

Walter D'Lima
,
Old Dominion University

Abstract

This paper presents evidence on differential tax related incentives for divestments in residential real estate markets. Assets that are held for at least a year are taxed at a lower capital gains tax rate. We exploit a discontinuity in capital gains tax rates around the one year holding period mark for residential property. First, we show that retail investors, relative to homeowners that hold property for consumption purposes, disproportionately time sales to avail such benefits. Secondly, experienced investors are more likely to capitalize on the discontinuous tax benefit. Lastly, we highlight a trade-off between timing sales and capitalizing on the differential saving between short and long term capital gains tax rates and show that returns are lower for divestments that occur immediately after the one year mark.

Supply and Demand Responses to a Tax on Size of Rental Housing: Theory and Evidence from Iran

Carlos Hurtado
,
University of Richmond
David Albouy
,
University of Illinois
Kaveh Nafary
,
Deloitte

Abstract

We use a unique administrative dataset on housing transactions in Tehran to provide evidence on the incidence and distortionary effects of taxes on rental properties. We exploit a particular feature of the tax code in the Tehran rental market, where the tax-exemption threshold depends on the property’s size. Substantial bunching occurs below the tax cutoff, suggesting strong behavioral responses to the tax kink. We also find higher after-tax rents above the kink. Based on these variations, we develop a structural framework with property taxes and filing costs to estimate the price elasticities of housing size supply and demand. We estimate a mid-run (10-year) price elasticity of housing size supply of 1.36 and price elasticity of housing size demand of -0.17. We find high, but incomplete pass-through of the rental tax, implying that renters bear most filing costs.

The Effect of Public Property Valuation

Simon Stehle
,
University of Konstanz

Abstract

Homeowners' property tax payments are commonly calculated as a fraction of their homes' estimated market values (EMVs). These EMVs should impact trading prices through two counteracting channels. First, an increase in EMV implies increased tax payments, which should negatively affect a home's trading price (tax channel). Second, EMVs are a potential reference price, which should lead to a positive effect (anchoring channel). In a quasi-experimental setting that exploits geographic variation in timing of EMV publications and revaluation frequencies, I show that a higher EMV leads to a lower trading price, i.e., that the tax channel dominates.

Real Estate Taxes and Home Value: Winners and Losers of TCJA

Wenli Li
,
Federal Reserve Bank of Philadelphia
Edison Yu
,
Federal Reserve Bank of Philadelphia

Abstract

We examine the impact of changes in the federal tax treatment of local property taxes stemming from the implementation of the Tax Cuts and Jobs Act on local housing markets in 2018. Our analyses indicate that capping the federal tax deduction of real estate taxes at $10,000 has caused the growth rate of home value and market liquidity to decline in areas where real estate taxes as shares of taxable income exceeded the national median. Growth in local construction employment growth and multi-family building permits also slowed. On net more people moved out of these areas after the reform.
Discussant(s)
Sebastien Bradley
,
Drexel University
Michael Best
,
Columbia University
Jan K. Brueckner
,
Univesity of California-Irvine
Hal Martin
,
Federal Reserve Bank of Cleveland
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue