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The 1981 Tax Act: Cost Recovery Choices for Real Property

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  • Gailen L. Hite
  • Raymond J. Krasniewski

Abstract

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.

Suggested Citation

  • Gailen L. Hite & Raymond J. Krasniewski, 1982. "The 1981 Tax Act: Cost Recovery Choices for Real Property," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 200-208, June.
    • Handle: RePEc:bla:reesec:v:10:y:1982:i:2:p:200-208
    DOI: 10.1111/1540-6229.00263
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