Date of Award


Document Type


Degree Name

Master of Science



First Advisor

Richard Rickert

Second Advisor

Ernest A. Demba

Third Advisor



Prior to the 1986 Tax Act , the real estate industry enjoyed privileged status granted by the Economic Recovery and Tax Act of 1981 . Because of flagrant abuse of the provisions of the 1981 Act, Congress passed the 1986 Tax Reform Act in order to curtail certain activities in the real estate market that had become unhealthy for the economy of the United States . Therefore, it is the intent of this project to show its readers that the 1986 Tax Reform Act had a negative impact on the office building market in St. Louis County.

The following pages explore a variety of issues concerning the 1986 Tax Reform. The articles cited in this paper cover many topics that figured significantly in bringing about the need for tax reform . Data on office building permits , office construction, and vacancy rates does support this thesis that the 1986 Tax Reform Act had a negative effect on the office building market in County. St. Louis County.

Chapter One focuses on conditions in the real estate market and the United States economy prior to 1986 . The reasons and goals behind the passage of the Economic Recovery and Tax Act of 1981 are discussed . Changes in monetary policy during this time also played a large part in boosting investments in real estate projects, and are discussed in detail in this chapter . Chapter One deals with a period of excesses . There were excess money in the hands of lenders, excess building by real estate investors , excess tax sheltering by real estate syndicators , and excessive losses of tax revenue as a result of this tax sheltering.

Chapter Two is a discussion of specific areas of the 1986 Tax Reform Act that impact of the real estate market . have particular These areas are the altering of depreciation periods , the change in the long-term capital gains rate, the extension of at-risk rules to real estate activities , limitations on interest expense deductions , and change in the corporate tax rate . Spreadsheets are given which show how these changes collectively work to decrease the value of commercial property.

In Chapter Three details the area referred to as St. Louis County . Also, this chapter describes the types of office space that are not included in office space inventory data provided by St . Louis County's Department of Planning . Identifying the geographical areas used in this paper is very important since different reports on topics such as vacancy rates, office construction , and building trends are not uniform in their definitions of the St . Louis County area. Some sources included the St . Charles County area as a part of the St . Louis Regional area , while others included parts of Illinois. The author has made every possible effort to use only those references that gave data on St . Louis County as it is defined in this chapter.

The emphasis of Chapter Four is on the office market in St . Louis County before the 1986 Tax Act . This exam in a t ion is necessary in order to determine what impact the 1986 Tax Reform Act had on this market . Identifying office building construction trends, and establishing the motives of investors in the office market before 1986 is very important since these factors indicate to what degree investment decisions were based on tax policy, instead of demand for office product. How St . Louis County investors made investment decisions before 1986 will have a direct bearing on the office building market after implementation of the 1986 Tax Act.

Chapter Five discusses the office building market in St . Louis County in the years following; the 1986 Tax Reform Act . Data on office vacancy rates, office building permits, and completion of office space is interpreted to show that the 1986 Act did indeed have a negative effect on this market . The degree of damage caused by tax changes is also examined and explanations as to why the St. Louis County area fared better than other parts of the nation is discussed . The savings and loan crisis is also mentioned as a factor in curtailing supply of new office space.

Finally, a summation of this writing addresses the debatable issue of whether the impact of the 1986 Tax Reform Act will prove to be negative in the future . Predictions regarding the St . Louis County area that may cause investors in office buildings to view the 1986 Tax Reform Act as a positive change are discussed as a point for further research .

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