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The Impact of Deferred Tax on the Purchase Prices in Czech Real Estate Transactions

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  • Tomáš Podškubka
  • Barbora Rýdlová

Abstract

The study examines the deferred tax in the valuation and acquisition of real estate companies, the behavior of the buyers and sellers in real estate transactions and the impact on the purchase price. We analyze the data from the Czech Republic commercial real estate market in the period of 2018-2019 where taxation provisions for Asset and Share Deal transactions induce a special type of a deferred tax - a latent capital gains tax (LCGT). Based on the data of 25 Share Deal real estate transactions we bring evidence that the LCGT was reflected in the purchase price by 0-50%, median value being 0%. We document that this market-imported percentage can be explained in two complementary ways. Firstly, using the capitalization approach, and secondly, using the behavioral approach by the bargaining power of the seller. Moreover, we show that the LCGT percentage reflected in the purchase price is dependent only on the discount rate and tax amortization period.

Suggested Citation

  • Tomáš Podškubka & Barbora Rýdlová, 2024. "The Impact of Deferred Tax on the Purchase Prices in Czech Real Estate Transactions," Prague Economic Papers, Prague University of Economics and Business, vol. 2024(6), pages 691-708.
    • Handle: RePEc:prg:jnlpep:v:2024:y:2024:i:6:id:883:p:691-708
    DOI: 10.18267/j.pep.883
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    References listed on IDEAS

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    1. John G. Dillard & Todd H. Kuethe & Craig Dobbins & Michael Boehlje & Raymond J. G. M. Florax, 2013. "The Impacts of the Tax-Deferred Exchange Provision on Farm Real Estate Values," Land Economics, University of Wisconsin Press, vol. 89(3), pages 479-489.
    2. David C. Ling & Andy Naranjo & Milena T. Petrova, 2018. "Search Costs, Behavioral Biases, and Information Intermediary Effects," The Journal of Real Estate Finance and Economics, Springer, vol. 57(1), pages 114-151, July.
    3. Mats Wilhelmsson, 2008. "Evidence of Buyer Bargaining Power in the Stockholm Residential Real Estate Market," Journal of Real Estate Research, Taylor & Francis Journals, vol. 30(4), pages 475-500, January.
    4. John P. Harding & Stuart S. Rosenthal & C. F. Sirmans, 2003. "Estimating Bargaining Power in the Market for Existing Homes," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 178-188, February.
    5. Andrew Holmes & Barrett A. Slade, 2001. "Do Tax‐Deferred Exchanges Impact Purchase Price? Evidence from the Phoenix Apartment Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(4), pages 567-588, April.
    6. John P. Harding & John R. Knight & C.F. Sirmans, 2003. "Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(4), pages 601-622, December.
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    More about this item

    Keywords

    deferred tax; latent tax; real estate transactions; transfer of property; transfer of interest;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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