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Tax depreciation and risk

Strnad, Jeff (1999) Tax depreciation and risk. SMU Law Review, 52 . pp. 547-665. ISSN 1066-1271. https://resolver.caltech.edu/CaltechAUTHORS:20171108-151129506

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Abstract

A major issue under an accretion tax is how to treat depreciable assets, assets that tend to decline in value with time and use. The classic theoretical ideal is economic depreciation, a stream of deductions that exactly replicates the decline in value of each asset over time. Although some parts of U.S. law aim to replicate economic depreciation, tax depreciation is normally allowed at a rate that is faster than economic depreciation. The goal of "accelerated depreciation" is to provide a general subsidy to investment without distorting the choice between assets. Thus, the ideal is to allow acceleration of tax depreciation for all assets but to tailor the degree of acceleration for each asset so that no asset is favored over another strictly due to the tax depreciation rules. Risk affects depreciable assets. For example, it is uncertain how long an asset will function. Some assets wear out and fail much earlier than others. This type of risk is "retirement risk." Retirement risk plays a special role in the analysis of depreciation rules.


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Additional Information:© Jeff Strnad 1999. I have benefited from comments received when earlier drafts were presented to the Los Angeles Tax Policy Group, Harvard Tax Policy Workshop, and workshops at Yale Law School and Stanford Law School. In addition, I am grateful for helpful comments outside of the workshop context from Bill Andrews, Ellen Aprill, Joe Bankman, Dick Craswell, Tom Griffith, Christopher Hanna, Louis Kaplow, Mark Kelman, Bill Klein, Michael Knoll, Ed McCaffery, David Mills, Eric Ramseyer, Roberta Romano, Matt Spitzer, Al Warren, and from various Treasury Department personnel. Finally, I am grateful for valuable comments and thorough research assistance from Bill Scarff. All errors are my own responsibility. Formerly SSWP 765.
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Deposited On:08 Nov 2017 23:38
Last Modified:03 Oct 2019 19:02

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