Tax Induced Divestment in the Residential Market - Insights from Investors and Non-investors
23 Pages Posted: 23 Jun 2020 Last revised: 25 Oct 2023
Date Written: May 29, 2020
Abstract
This study explores the effect of capital gains taxation on real estate transactions by comparing individual investors, that have greater timing ability and are more sophisticated, with owner- occupants. The study is based on a discontinuity in capital gains tax rates around the one-year holding period mark. The results document that investors that hold property for an investment purpose, relative to non-investors that are owner-occupants, exhibit a higher likelihood of selling immediately after the one-year holding period mark. Thus, frictions that inhibit optimal capitalization of tax rules differ based on investment and consumption objectives, i.e., for individual investors and non-investors. Additionally, the results depict the significance of sophistication and financial learning.
Keywords: capital gains tax, holding period, homeowner, investor, sophistication
JEL Classification: G11, R2
Suggested Citation: Suggested Citation