Tag Archives | REITs

The Asset Price of Capital Gains Taxes: Evidence from the Taxpayer Relief Act of 1997 and Publicly-Traded Real Estate Firms

We provide new evidence that corporate-level investment subsidies can be substantially capitalized into asset prices by examining the relative stock price performance of publicly traded companies in the real estate industry that should have been differentially affected by the capital gains tax rate reduction enacted in the Taxpayer Relief Act of 1997. By comparing real estate firms that have an organizational structure that allow property sellers to defer capital gains taxes and plan to use it to acquire property with those that do not, we isolate the effect of the tax cut from industry trends and firm-level heterogeneity. When we examine the time period surrounding the reduction in the capital gains tax rate, our results suggest the tax change was substantially capitalized into lower share prices for these firms and that the benefit of the seller’s capital gains tax deferral accrued mainly to the buyer of an appreciated property. The validity of our estimation strategy is supported by further tests showing that these firms did not experience any relative movement in share prices during the previous year when capital gains tax rates did not change.

The Asset Price of Capital Gains Taxes: Evidence from the Taxpayer Relief Act of 1997 and Publicly-Traded Real Estate Firms with Joseph Gyourko, Journal of Public Economics vol 88, number 7-8 (July 2004), pp. 1543-1565 (PDF)

The REIT Vehicle: Its Value Today and the Future

The real estate investment trust (REIT) structure has come under increasing scrutiny given the problems the structure poses for finns wishing to retain earnings in depressed real estate equity and debt markets. We estimate the net benefits of the structure to be no more than 2%-5% of industry equity market capitalization, although the benefits are larger for firms with lower payout ratios. In addition, the value of the format doubles as the share of tax exempt/deferred investment in REITs increases to 40%, the fraction obtaining in the broader equity market. Educating this investor clients on the benefits of the REIT structure is an important goal for REIT management.

The REIT Vehicle: Its Value Today and the Future with Joseph Gyourko, Journal of Real Estate Research vol 18, number 2 (September/October), pp. 355-376 [Reprinted in Properties, number 2 (Winter 2000), pp 35-56] (PDF)

Powered by WordPress. Designed by Woo Themes