Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:
A) always less than true economic depreciation.
B) always greater than true economic depreciation.
C) always equal to true economic depreciation.
D) sometimes greater than true economic depreciation and sometimes less.

Question

Quizplus · Accepted Answer

Depreciation for tax purposes in the U.S. does not always match the actual economic depreciation of an asset. Tax laws prescribe specific methods and schedules for calculating depreciation, which can lead to situations where the tax depreciation is either more or less than the asset's economic depreciation over its useful life. This discrepancy arises because tax depreciation methods, such as Modified Accelerated Cost Recovery System (MACRS), are designed for tax policy purposes rather than reflecting the true economic wear and tear of the asset.

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