A COMPARISON OF THE IMPACT OF VARIOUS TAX LAW PROVISIONS ON DEPRECIABLE ASSETS RELATIVE TO TAX NEUTRAL MODELS (RENTAL (USER) COST OF CAPITAL, EFFECTIVE RATES, REAL ESTATE)

This dissertation examines the impact of various tax law provisions on the effective tax rates of assets with different rates of economic depreciation (i.e., different economic lives) under different inflation scenerios. Three asset categories are used as the basis of comparison--short-lived, intermediate-lived, and long-lived assets. This study confirms the results of previous economic studies that the impact of tax law provisions on effective tax rates is sensitive to the economic life of assets.;A unique aspect of this study is that it uses two tax neutral models, an indexed one and a nonindexed one, as benchmarks for measuring and comparing the amount of tax benefit (or tax penalty) received by the three asset categories from each tax law provisions examined. The indexed tax neutral model fully indexes the tax basis of assets for inflation whereas the nonindexed tax neutral model does not. An interesting finding of this study is that individual tax law provisions which provide ad hoc adjustments for inflation, such as the capital gains deduction and accelerated depreciation, generally do not adequately compensate the investor at high levels of inflation when measured against the indexed tax neutral model. This study also analyzes possible tax treatments of selling costs that are incurred when the asset is sold at the end of the holding period from the perspective of their implications for tax neutrality.;This study employs the major economic assumptions of the user cost framework as the framework of analysis. However, this dissertation extends the traditional user cost model by examining the effects of tax law provisions in the context of a finite, or limited, holding period. When assets are held for a limited holding period, tax law provisions come into play under the existing tax system that are not operative when assets are assumed to be held until no appreciable value remains. The interaction between tax law provisions relating to the taxation of capital gains and tax provisions relating to accelerated depreciation and tax credits produces tax effects which cannot be captured by traditional user cost models that assume a "buy and hold" investment strategy.