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Taxation of capital gains on owner-occupied homes

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  • Englund, Peter

Abstract

The paper compares taxation on realization with taxation on accrual in the context of owner-occupied housing. It considers a model where the utility a household derives from housing relative to other consumption varies over the life-cycle. As there are sizeable transaction costs, housing consumption will not, even in the absence of taxes, be adjusted continuously but at discrete intervals. The focus of the paper is on tax effects on the length of these intervals. The following results are shown:uTaxing ‘true economic appreciation’ at the same rate as imputed rental income and other capital income will lead to a shortening of the intervals.If the capital gains are taxed on accrual, an increase in this tax rate holding other rates constant will lead to a shortening of the intervals.If the capital gains are taxed only as they are realized, an increase in this tax rate holding other rates constant may either lead to a lengthening or a shortening of the holding period. Shortening is more likely if transaction costs are large, whereas lengthening will occur if the rate of price increase is high.

Suggested Citation

  • Englund, Peter, 1985. "Taxation of capital gains on owner-occupied homes," European Economic Review, Elsevier, vol. 27(3), pages 311-334.
  • Handle: RePEc:eee:eecrev:v:27:y:1985:i:3:p:311-334 DOI: 10.1016/S0014-2921(85)80018-0
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    References listed on IDEAS

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    Cited by:

    1. Nicole Aregger & Martin Brown & Enzo Rossi, 2013. "Transaction Taxes, Capital Gains Taxes and House Prices," Working Papers 2013-02, Swiss National Bank.
    2. Khalid Sekkat & Ariane Szafarz, 2011. "Valuing Homeownership," The Journal of Real Estate Finance and Economics, Springer, vol. 43(4), pages 491-504, November.
    3. Jos Van Ommeren & Michiel Van Leuvensteijn, 2005. "New Evidence of the Effect of Transaction Costs on Residential Mobility," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 681-702.

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