BOMA International now calls upon Congress to have the tax code reflect economic reality by indexing the basis for real estate investments. Background Real estate, given its emphasis on real assets, would prefer that there be no tax on capital gains. As an interim step to ending this, Congress should tax assets more fairly by indexing them for growth due to inflation, thus eliminating taxes collected on inflationary increases. Thanks to the Federal Reserve's aggressive moves, we no longer face the 1970's problem of rapidly rising levels of inflation. However, it naturally continues to exist in low levels within the US economy and, unbeknownst to property owners, makes up a portion of any property's gain upon sale.
Inflation increases the nominal value of assets, leading to an overstatement of the real gain.
In fact, a Congressional Budget Office study revealed that inflation accounted for 52 percent of the nominal gains for assets purchased between 1949 and 1988. By not remedying this problem, the effective tax rate on gains from appreciation is actually higher than the stated capital gains rate. Although the elimination of the capital gains tax would resolve this problem, an interim step would be to allow the indexing of the basis for real estate assets. The cost to the federal government, in terms of revenue lost, would be relatively minor and real estate would achieve greater parity with other investment vehicles. Recent Activity Several members of Congress continue to be strong proponents of indexing.