Example: 30% tax bracket has $100 of consumption today with borrowed funds. Repaid in five years. $30 tax on consumption has present value of $18.63 at 10% discount rate.
When loan proceeds are used for investment:
Borrowings are included in taxpayer’s basis in property, on which depreciation deductions are allowed. Taxpayers can basically deduct costs that have not yet been incurred.
Example: Borrow $100, full purchase price of building, ten year term. On acquisition, $100 is price and can be used to claim annual depreciation deduction starting in the first year. Significant time-value advantage.