Abstract To stimulate economic growth by the encouragement of investment in productive facilities, the 1962 tax law gives a credit against the tax liability of a company. Broadly speaking, the deduction is 7 per cent of qualified investment in new, and to a limited extent used, depreciable property. The 1.3 billion annual tax break has been hailed as a major aid to the U. S. industry in its battle with foreign producers, but it presents some significant accounting problems. The investment credit is not elective. If the business qualifies for the credit, the basis of the property will reduced by the credit which was due. This is true regardless of whether the business claims or does not claim the credit or was unable to use the credit because of operating at a loss. Property qualifies in the year that it is put in service even though depreciation under the taxpayers method of depreciation does not start until the following year. There is no proration required of the credit. For tax purposes all of the investment in facilities and related investment credit is taken into account in the year of initial service even though the property is put into service the last day of the taxable year.
Berg et al. (Mon,) studied this question.