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1 Alex Muresianu, 1980s Tax Reform, Cost Recovery, and the Real Estate Industry: Lessons for Today 1 (2020)

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                            1980s Tax Reform, Cost Recovery,

                            and the Real Estate Industry:

                            Lessons for Today

FISCAL                      Alex  Muresianu
FACT
No. 720
July 2020                   Key Findings


                                 Allowing companies  to fully and immediately deduct investments in
                                  structures is one of the most cost-efficient ways lawmakers can stimulate
                                  investment, create jobs, and boost GDP during a post-pandemic recovery.

                                 Changes  to depreciation schedules in the two pieces of major tax legislation
                                  in the 1980s influenced investment in real estate and have since been
                                  reformed, so accelerating cost recovery for structures would not cause the
                                  problems  that bedeviled 1980s real estate like overbuilding.

                                 The Economic  Recovery  Tax Act of 1981 accelerated depreciation of
                                  commercial  and noncommercial  real estate, making those investments more
                                  attractive.

                                 The Tax Reform  Act of 1986 extended depreciation schedules for both forms
                                  of real estate, reducing the attractiveness of those investments.

                                 The real estate market was volatile in the 1980s due to a variety of factors,
                                  including but not limited to those tax changes.

                                 The tax provisions that helped drive inefficient investment were the
                                  deduction for business interest and the passive loss deduction, which created
                                  opportunities for tax-motivated investments by how they interacted with
                                  cost recovery policy.
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