Keywords

tax-deferred exchanges, compliance risk, apartment price premium

Abstract

Many authors have commented on the compliance risk associated with taxdeferred exchanges. However, no published studies explicitly address whether the risks associated with the exchange process impact the price at which exchanged assets trade. Using a unique data set that documents transactions for nondirect exchanges, this study examines the price impact of tax-deferred exchanges on apartment transactions in the Phoenix, Arizona, market. Consistent with the price pressure hypothesis originally developed by Scholes (1972) and Kraus and Stoll (1972) and the tax capitalization hypothesis proposed by Oates (1969), the data show that exchange participants pay an economically significant premium to acquire replacement assets. A conventional hedonic price index is generated to investigate the rational bounds of the exchange premium.

Original Publication Citation

Holmes, A. and B. Slade, 2001, Do Tax-Deferred Exchanges Impact Purchase Price? Evidence from the Phoenix Apartment Market, Real Estate Economics, 29:4, pp. 572 – 588.

Document Type

Peer-Reviewed Article

Publication Date

2002

Publisher

Real Estate Economics

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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