Just What Is The Destination-Based Cash Flow Tax System?

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March 06, 2017

A cash flow tax plan is being pushed in congress. Zillow breaks down what the taxation system is, how it will work, and what it will mean for housing.

Similar to a Value Added Tax, the destination-based cash flow tax plan taxes cash that flows through a firm and factors a Border Adjusted Tax that identifies what expenses can or cannot be deducted. Companies could deduct export sales, but can no longer deduct import costs.

The effect on housing and the real estate industry depends on how quickly and fully the dollar adjusts. A full adjustment may result in no changes. If the dollar doesn't fully adjust, though, consumers may experience a decline in purchasing power, which could impact real estate.

Many construction materials (i.e. Canadian lumber), appliances and furniture are all heavily imported and could jump in price. Builders might benefit by being able to deduct labor costs and pay a lower corporate tax rate, which could affect construction rates.

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