SUITE 520, KIRKEBY CENTER / 10889 WILSHIRE BOULEVARD / LOS ANGELES, CALIFORNIA 90024 / (213) 473-0901 · (213) 879-0333 September 15, 1969 Senate Finance Committee 2227 New Senate Office Building Washington, D. C. Gentlemen: It is my considered opinion that it would be a mistake to eliminate accelerated depreciation as proposed in the Tax Reform Bill as reported out of the House Of Representatives. As you are well aware, the present real estate market is in a state of extreme depression. It is very difficult to purchase investment quality real estate and even more difficult to sell investment real estate at a price sufficient to yield a reasonable return on the initial investment. The price of real estate is a function of the economic return that it generates. A substantial portion of the return generated by real estate through the present time has been the tax benefits created by the interest and depreciation deduction allowed to the owner of the real estate. Our firm specializes in purchasing, for our clients, investment quality Page Two is great. If there were no substantial tax benefits to be gained by owning real estate we would have three courses of action open to us. 1. Pay considerably less money for the real estate, which 2. Pay the same price for the real estate but raise the rents 3. Find another suitable investment vehicle other than real estate. It is my opinion that the effect of the reduced tax savings will be a substantial across the board increase in rents to raise the return to real estate investors so that the need for residential units can be met. The argument is made that accelerated depreciation is continued to be allowed to original owners of apartment houses. That in itself is not satisfactory because firms such as ours only buy existing structures. The initial builders must be able to anticipate a profit on sale or they will not build the building even through the builder may receive the tax benefits. There are two reasons for this. 1. As you know the tax benefits to the original builder, under Page Three September 15, 1969 the new law, will be illusory because of the recapture provisions. 2. There will be no market to re-sell the property because the second buyers will not receive any tax benefits. It is my opinion that the economy is a self adjusting device that adjusts for tax benefits. In other words, an investor expects a 15% yield on his invested dollars. He is willing to take part of his yield in tax benefits if they are available. If they are not available then he must have a greater cash yield to off-set the lost tax benefits. The net result of this is that if you remove the tax benefits from real estate the yield on real estate will have to rise which will cause increased rents and greater inflation. Very truly yours, CAPITAL CONCEPTS CORPORATION Danilure 21 Lawrence M. Schulner LMS: mtb |