federal tax credit resulting from ownership of capital equipment. The tax credit is taken in the year the asset is placed in service. Also called investment tax credit or ITC. The ITC was repealed by the Tax Reform Act of 1986 for all equipment placed in service after 1985, unless the equipment qualified under special transitional rules. The ITC was originally intended to compensate owners of equipment and equipment lessors for their capital costs.
reduction in income tax liability granted by the federal government over the years to firms making new investments in certain asset categories, primarily equipment; also called investment tax credit. The investment credit, designed to stimulate the economy by encouraging capital expenditure, has been a feature of tax legislation on and off, and in varying percentage amounts, since 1962; in 1985 it was 6% or 10% of the purchase price, depending on the life of the asset. As a credit, it has been deducted from the tax bill, not from pretax income, and it has been independent of depreciation. The tax reform act of 1986 generally repealed the investment credit retroactively for any property placed in service after January 1, 1986. The 1986 Act also provided for a 35% reduction of the value of credits carried over from previous years, which was later changed to 50%.
