Abstract
This paper examines the effect of recent proposals for tax reform (Treasury I and Treasury II) on the tax benefits and value of real estate income property. The effect on tax benefits is measured by the effective tax rate, and the potential impact on value is measured by the capitalization rate (user cost). The analysis of Treasury I provides insight into the effect of a tax‐neutral system on real estate since this proposal comes close to meeting the criteria of tax neutrality. The importance of debt in evaluating tax neutrality is also shown. The paper demonstrates that the interaction between tax law changes and the way interest rates adjust to inflation are critical to the conclusions.
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