AN ANALYSIS OF REAL ESTATE AND OTHER TAX-PREFERRED INVESTMENTS.

摘要

Federal income tax laws are such that certain assets are given preferential tax treatment relative to other assets. Sources of preferential taxation include deferral of taxes, conversion of taxes to a capital gains tax rate, and partial or full exemption of taxes. Assets can differ by both the amount and number of different types of tax preference present. This differential tax treatment of certain assets creates economic incentives that differ from a world where either all assets are taxed equally or there are no federal income taxes.;In general, an asset can be thought of as consisting of two components: (1) a cash-flow component which in the absence of any tax shelter would be fully taxable at the individual's ordinary income tax rate, and (2) a tax-shelter component which results in some amount of taxable income being sheltered from taxation at the investor's current ordinary income tax rate. The nature of an individual's portfolio choice, and the implications for market equilibrium depend on the extent to which these cash-flow and tax-shelter claims can be separated and traded in the market. This study examines the demand for these claims and the resulting market equilibrium. An after-tax capital asset pricing model is developed which captures a full range of preferential taxation from full taxation to exemption. Investors are shown to hold different portfolios when tax-shelter and cash-flow claims cannot be separated. This is because investors must trade off between tax-shelter services and diversification services. If investors can purchase stochastic cash-flow claims separately from tax-shelter claims, investors would hold identical portfolios of claims on stochastic cash flows while specializing in tax-shelter claims. This gives investors the fullest diversification benefits and the most freedom to buy or sell tax-shelter claims. Thus, there are incentives for individuals and market intermediaries to develop devices to separate and repackage these claims. Some of these devices such as leases, leverage, and limited partnerships are discussed. The important role of tax losses from assets such as real estate income property is emphasized.;The benefit of differential taxation can be reduced by uncertainty as to the investor's future tax rate. The effect of tax-rate uncertainty is evaluated in this study. First, the interaction of a progressive tax rate structure with uncertain cash flows is analyzed. A more general model is then developed which allows each investor's tax rate to be a random variable.;Assets such as real estate income property contain several tax-preference components which can affect an individual's portfolio choice and the asset's relative price. Because of the many factors which affect the tax-preference components of an asset such as real estate, the market price of the various tax-preference components can differ. This study examines the supply and demand characteristics of these tax-shelter components in order to see how the prices of each component might differ. The availability of tax shelter from real estate and other tax-preferred investments determines the effective tax structure facing individuals. This study concludes that the effective tax structure is likely to be much less progressive than that which is implied by the tax schedules facing individuals.;This study extends the literature which has examined the effects of differential taxation on an individual's portfolio choice and the relative prices of assets. The main sources of income, the way they interact with the individual's tax function, and the economic incentives created by differential taxation are examined.