Accelerated Cost Recovery System Research Articles

Data Analytics for Undergraduate Tax Students: An Alteryx Case Study for MACRS Depreciation

ABSTRACT The increasing use of data analytics in the accounting profession necessitates development of instructional cases that teach students how to use data analytics tools to solve common accounting problems. While there has been an emphasis on data analytics cases for graduate education, we recognized a need for such cases at the undergraduate level to prepare students for internships, careers, and graduate education. This case meets this important need by introducing Alteryx in a typical tax setting—the calculation of Modified Accelerated Cost Recovery System (MACRS) depreciation. The learning objectives are to: (1) extend knowledge of data analytics; (2) develop skills using Alteryx to extract, transform, and load data; (3) demonstrate understanding of tax rules for computing depreciation; and (4) develop effective written communication skills.

Development of a BIM-Enabled Automated Cost Segregation System

The cost segregation study is a tax planning strategy employed to optimize cash flow by redefining real estate assets as personal property and land improvement, enabling accelerated tax depreciation. However, conventional cost segregation practices suffer from limitations, such as time-consuming procedures and high associated costs, which hinder their effectiveness. To overcome these challenges, this paper presents an innovative strategy that integrates Building Information Modelling (BIM) to develop an automated cost segregation system. The research aims to optimize the workflow by developing a BIM model and using 5D BIM to perform a cost segregation study by categorizing building elements under a Modified Accelerated Cost Recovery System (MACRS). This workflow aims at minimizing the time and financial resources expended with traditional methodologies. The proposed workflow enables precise identification and separate depreciation of building components, resulting in significant tax deductions that would otherwise be unattainable. The results indicate that performing cost segregation with BIM leads to a significant increase in depreciation amounts, particularly during the initial six years, while also raising the net present value of depreciation by 45%. The integration of BIM technology facilitates effective management and sharing of cost segregation data among stakeholders, enhancing collaboration and decision-making throughout the project lifecycle. Owners can optimize cost management and financial planning, identifying tax-saving opportunities and improving cash flow. General Contractors (GCs) can leverage the system during the bidding process, enhancing their competitiveness and project acquisition potential. Future research can explore the integration of cost segregation modules from BIM with asset management tools, enabling improved facility and fiscal management of building components. Such integration holds promise for enhancing the construction and real estate industry’s overall efficiency and performance.

태양광 설비투자에 대한 제도적 유인방안 연구: 감가상각법의 경제적 효과 분석

The value of tangible assets depreciates over their useful life and this depreciation should be adequately reflected in any tax or financial reports. However, the method used to calculate depreciation can impact the financial performance of solar projects due to the time value of money. Korean tax law stipulates only one method for calculating the depreciation of solar photovoltaic facilities: the straight-line method. Conversely, USA’s tax law accepts other depreciation methods as solar incentives, including the modified accelerated cost recovery system (MACRS) and Bonus depreciation method. This paper compares different depreciation methods in the financial analysis of a 10 MW solar system to determine their effect on the financial results. When depreciation was calculated utilizing the MACRS and Bonus depreciation method, the internal rate of return (IRR) was 10.9% and 16.4% higher, respectively, than when the Korean straight-line depreciation method was used. Additionally, the increased IRR resulting from the use of the two US methods resulted in a 20.5% and 27.4% higher net present value, respectively. This shows that changing the depreciation calculation method can redistribute the tax amount during the project period, thereby increasing the discounted cash flow of the solar project. In addition to increasing profitability, USA’s depreciation methods alleviate the uncertainty of solar projects and provide more flexibility in project financing than the Korean method. These results strongly suggest that Korean tax law could greatly benefit from adopting USA’s depreciation methods as an effective incentive scheme.

Development of a Simulation Software for Plant Asset Depreciation Computation Using Modified Accelerated Cost Recovery System

This work presents the computation of depreciation under Modified Accelerated Cost Recovery System using simulation software developed for the purpose. The three case studies presented provide in-depth analysis and applications of the simulation software that was developed. The results from the three case studies proved that the investment of $900,000 by Virgin Atlantic airline to purchase three new aircrafts will be recovered in 8 years; Toyota’s investment of $152,000 in the automated assembly line will be recovered in 8 years while AEG’s investments in the two forklift trucks and crane will both be recovered in 8 years for the same reason. These results gave a quick insight for evaluating such an unstructured real life problem as depreciation (cost recovery) in organizations.

PER UNIT COST ALLOCATION OF INVESTED CAPITAL WITH ANTICIPATED NON-LEVEL PRODUCTION: THE CASE OF EXTRACTIVE INDUSTRIES

The concept of equivalent annual annuity (EAA) has long been used as a method of costing recovery of invested capital and the required return on invested capital over the productive life of a capital project. Academic texts almost universally use EAA methodology with level payment streams (annuities) to allocate capital costs. We develop a methodology for allocating capital costs evenly over each unit of production for projects with anticipated non-level production. This methodology uses a modified EAA approach that allows non-level annuity payment streams. Capital cost allocation is an important component in computing the value of extracted minerals for severance tax purposes; however, many firms and state and federal agencies use ad hocdepreciation schedules to allocate these costs. Ad hocdepreciation methods such as modified accelerated cost recovery system (MACRS) may be appropriate for income tax purposes but are inconsistent with commonly found requirements that severance taxes “shall be assessed on the wellhead or mine mouth fair market value.” The modified EAA approach provides a straightforward alternative that is based on sound financial methodology.

Valuing Depreciable Assets

The 1986 Tax Reform Act is likely to extend optimal holding periods of depreciable assets until the point in time at which the tax basis is exhausted. Additionally, practitioners in the real estate markets tend to argue that the 1986 Tax Reform calls for a major reduction in depreciation tax benefits. Despite the reduction in benefits, values of depreciable properties may nevertheless rise. This paper analyzes various tax legislations in terms of the effect these legislations have on the optimal trading policy for depreciable assets. The tax code of the 1981 accelerated cost recovery system (ACRS), the 1984 ACRS, and the new 1986 Tax Reform Act are compared.

Effects of Management Buyouts on Corporate Interest and Depreciation Tax Deductions

THIS article reports depreciation and interest tax deductions associated with 83 management buyouts completed during 1982-86 and discusses how both the magnitudes of these deductions and the tax savings to be gained from them are affected by the tax environment and economic circumstances of the buyout. Our discussion of the effects of the tax environment includes estimates of the impact on buyout-related deductions of two major pieces of tax legislation: the Economic Recovery Tax Act (ERTA) of 1981 and the Tax Reform Act (TRA) of 1986. These estimates provide evidence on the sensitivity of buyout-related tax subsidies to specific features of the code. Presumably, these sensitivities will help determine trends in future tax-driven restructurings. One focus of our analysis of the tax environment is the alleged tax incentives ERTA provided for acquisitions. Specifically, a transfer of assets enabled both a step-up in the tax basis of assets (also available prior to 1981) and the application of Accelerated Cost Recovery System (ACRS) depreciation to the new basis. Scholes and Wolfson' document

Optimal Depreciation Policy Under the Tax Reform Act of 1986

Abstract Mathematical expressions for allowable depreciation are developed for the Modified Accelerated Cost Recovery System (MACRS) as well as the allowed alternate method (AMACRS), two capital recovery methods permitted under the Tax Reform Act of 1986. The choice between MACRS or AMACRS is rigorously analyzed with respect to normal asset disposition, premature asset disposition, monotone decreasing tax rates and monotone increasing tax rates. Conditions under which either MACRS or AMACRS is optimal are specified, and the economic value of the optimal policy is determined. Numerical illustrations are provided throughout the paper to demonstrate the underlying methodology. Handled by the Department of Engineering Economics.

The 1986 US tax reform and the world capital market

The 1986 U.S. tax reform was a policy of tax cut cum base broadening.’ Among other things, the corporate and personal tax rates were reduced, the Investment Tax Credit (ITC) was lifted, the depreciation periods of the Accelerated Cost Recovery System (ACRS) were lenghtened, and realized capital gains became fully included in the personal tax base. This paper gives a brief overview of the main effects on international capital movements that these measures may have, drawing on related and more elaborate discussions of the subject in Sinn (1987a, Ch. 7, and 1987b). The analysis focuses on the interactions between the real and financial spheres of the economy and, unlike most of the existing literature on taxation and international capital flows, it is based on a microfoundation of the tax influence on the firms’ marginal investment conditions. The main result is that, in the presence of accelerated depreciation and the residence principle for interest income taxation, not only the base broadening, but also the tax cuts, may expel capital from the United States.

The advantages of the accelerated cost recovery system and capital investment decision making.

(1986). The Advantages of the Accelerated Cost Recovery System and Capital Investment Decision Making. Hospital Topics: Vol. 64, No. 5, pp. 24-26.

Viewpoint – Reagan Tax Reform Inhibits Public Debt

This article discusses the impact of President Reagan's tax proposals, which were released to the US Congress on May 28, 1985, on the ability of state and local governments to finance needed infrastructure improvements at reasonable cost. Topics covered include: accelerated cost recovery system, investment tax credit, tax‐exempt financing, and long‐term service contracts for tax‐exempt facilities.

Why Taxes Matter: Reagan's Accelerated Cost Recovery System and the US Trade Deficit

Accelerated depreciation and the US trade deficit Hans-Werner Sinn In 1981 the introduction of the Accelerated Cost Recovery System (ACRS) dramatically reduced the tax depreciation periods for most US corporate investment. This is likely to have caused an investment boom in the US, an increase in world interest rates, and a massive redistribution of world capital towards the US. US trade deficits are the counterpart to this capital flow. The mechanism is straightforward. Double tax agreements mean that interest income is taxed according to the residence principle, hence world financial markets tend to equate pretax rates of interest. Effectively, debt is the marginal source of investment finance, and investment will proceed until its post-tax return equals the pre-tax interest rate. With US corporations enjoying a larger tax offset on depreciation, the US capital stock will expand, interest rates will increase, and the capital stock in the rest of the world will contract. Thus the introduction of ACRS in 1981 may simultaneously explain the US investment boom, the strength of the Dollar, high world interest rates, and the US trade deficit. Conversely, current proposals to abolish or reduce ACRS can be expected to have the opposite effect.

Regional effects of investment incentives

The Economic Recovery Tax Act of 1981 (ERTA) offers a number of powerful investment incentives. The Accelerated Cost Recovery System provisions of the act allow firms to depreciate structures over 15 years, equipment over 5 years, and vehicles over 3 years; in addition, the act expands the investment tax credit. Hulten [7] has estimated that ERTA will lower the effective tax rate from 33 to 12%. Some critics of the act contend that it is biased against the older Frostbelt regions.2 They argue that these incentives will lead to faster capital formation in the South and West and a new wave of plant closings in the Northeast and Midwest. Proponents of the act respond that it treats all regions equally since the more generous depreciation allowances are available to all investment regardless of location. This paper examines several potentially important short-run and long-run issues in this debate. Section II of the paper looks at an industry consisting of firms located in two regions. One of the regions is declining. No investment is forthcoming in this region as capital is allowed to depreciate and then is eventually scrapped. A new tax policy that increases the present value of depreciation charges reduces the cost of using new capital but offers no benefit to the owners of old capital. I show that as a result of this new tax policy, old capital becomes less competitive and is scrapped sooner and the decline of the region that is contracting accelerates. Section III examines the impact of this change in tax policy on the industry’s long-run equilibrium. Wages are higher in one of the regions and, as a consequence, production in that region is capital intensive. I show that

Long-Run Effects of the Accelerated Cost Recovery System

Long-Run Effects of the Accelerated Cost Recovery System

The Valuation of Variable Rate Leases

The last decade has seen dramatic growth in financial leasing in the U.S., the U.K., and other countries around the world (see, for example, [5]). Much of this growth can be attributed to the tax treatment accorded to such leases. As Miller and Upton [6] have shown, we should expect equilibrium rental rates to adjust until there is no particular advantage to such transactions unless the tax position of some firms prevents them from taking full advantage of the tax benefit associated with purchase. Myers, Dill, and Bautista [8] and Franks and Hodges [4] analyzed an important leasing transaction of the Anaconda Corporation and demonstrated that the company's tax-loss position made the transaction extremely favorable. Since then, the accelerated tax allowances under the Accelerated Cost Recovery System established by the Economic Recovery Tax Act of 1981 have further increased the advantages of leasing in this type of situation. A similar story holds in the U.K. where the introduction of

A Note on Expensing versus Depreciating under the Accelerated Cost Recovery System: Comment

A Note on Expensing versus Depreciating under the Accelerated Cost Recovery System: Comment

Replacement decision based on productivity analysis— an alternative to the MAPI method

The paper presents an alternative replacement approach to Terborgh's MAPI procedure. Presented in the format of a case study, this illustrative example incorporates considerations on different machine types, factors of production, expansion of output, finite planning horizon, and the 1983 Accelerated Cost Recovery System (ACRS) depreciation schedule along with other factors traditionally considered. A solution procedure is also provided to determine the optimal replacement policy; the criterion is the maximization of the production process' future worth at the end of the planning horizon. A general literature review is included.

The 1981 Tax Act: Cost Recovery Choices for Real Property

This paper examines changes in cost recovery (i.e., depreciation) patterns for realty resulting from the Economic Recovery Tax Act of 1981. While the Act provides for much shorter write‐offs than were previously available, it also imposes more severe recapture penalties for commercial property that has been depreciated according to the new Accelerated Cost Recovery System. An analysis of discounted cash flows is used to predict investor selection of the most advantageous cost recovery method. Although the accelerated system is generally preferable for residential realty, there are many situations where a taxpayer owning commercial property will elect the optional fifteen‐year straight‐line method.

A Note on Expensing versus Depreciating under the Accelerated Cost Recovery System

A Note on Expensing versus Depreciating under the Accelerated Cost Recovery System

Effect of Economic Recovery Tax Act of 1981 on Oil and Gas Industry: ABSTRACT

The Economic Recovery Tax Act of 1981 provides many new concepts affecting taxpayers in the oil and gas industry. Of primary importance is the reduction in the windfall profit tax on newly discovered oil. The law also modifies the royalty credit, replacing the dollar exemption with a more liberal barrel exemption. It also provides for an exemption of windfall profit tax on independent stripper oil. The new law also provides for a new concept in recovering capital cost in fixed assets. Depreciation is replaced with the new accelerated cost recovery system. Many other changes were made in reduction in tax rates and the addition of saving incentives. The law is very complex and its provisions have various effective dates. Also, many of the changes are phased in over a period of time. End_of_Article - Last_Page 243------------