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- Title
TAX CLIENTELES OF DEPRECIABLE REAL ESTATE INVESTMENTS IN THE USA.
- Authors
Ebrahim, M. Shahid
- Abstract
The article illustrates, via simulation of a multi-period model, why non-taxable investors do own a fraction of total real estate available, although they do not gain from the tax write offs in the U.S. Due to tax benefits, a taxable investor may prefer real estate over other investment vehicles. If one introduces risk aversion on the part of both taxable and non-taxable investors, then for a unit of consumption given up today, the taxable investor gains more after tax in the future period. This leads to a higher ratio of marginal utility for taxable versus non-taxable investors. Numerous studies have examined asset pricing, with some effort focusing on real estate because real estate exhibits certain features that distinguish the pricing of real estate from that of financial assets. The taxable investor has an edge over the non-taxable investor because of the benefits of leverage and tax depreciation. Thus, one unit of consumption forgone today results in a higher future consumption for the taxable investor with the real estate investment vehicle.
- Subjects
UNITED States; REAL estate investment; TAX benefits; WRITE-offs; INVESTORS; RISK aversion
- Publication
Journal of Business Finance & Accounting, 1995, Vol 22, Issue 7, p991
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/j.1468-5957.1995.tb00890.x