We document the evolution of U.S. tax law regarding commercial real estate (CRE) since 1975, noting changes in income and capital gains tax rates and tax depreciation methods. The most prominent changes were in the 1981 and 1986 Tax Acts, but numerous significant changes occurred in the last dozen years. We then compute both the present value of tax depreciation per dollar of acquisition price and an effective tax rate for CRE. We explain the quarterly variation in CRE capitalization rates using an error-correction framework and find that the long-run estimates are statistically significant in the way theory would suggest. Moreover, the required financial asset return and the tax depreciation variables temporally predict (“cause”) capitalization rates in the long run, but not vice versa.