Delayed Depreciation as a Tax Shield.

Abstract Accelerated depreciation methods benefit firms that are in either constant or declining marginal tax brackets. When faced with rising income, and the possibility of rising marginal tax rates, low-bracket taxpayers may benefit from delaying depreciation charges through the adoption of a suggested reversed acceleration method of depreciation. A simulation shows that low-bracket taxpayers, who have prospects of rising incomes and discount rates of less than 17 percent in the corporate case and 27 percent for individuals, could benefit if such methods were available. In addition, while previous studies had shown that straight-line methods could be superior to accelerated methods under the pre-1981 tax laws, this paper shows that this possible superiority also continues following the revisions made to the tax laws in 1981 and 1982.