Depreciation

Depreciation is any loss in the value of a property over time from any cause.

Tax laws allow investors to depreciate the value of improvements. The term "depreciation" is often used regarding income taxes. This depreciation reduces taxable income and is usually figured using the straight-line method. This method assumes depreciation occurs at an even rate over the structure’s economic life or the time period over which the improvement can be profitably utilized. Once the replacement or reproduction costs of the existing improvements have been estimated, the next step is to subtract the depreciation which the property has suffered.

Depreciation can be either incurable or curable. A deficiency is curable if the property would increase in value by an amount equal to or greater than the amount you need to spend to solve the issue. The appraiser's concern must not just be if a problem can be physically repaired, but rather if the repair makes financial sense. For example, if spending $5,000 to repair a roof would add $5,000 or more to the value of a house, then the deterioration of the roof is said to be curable. If fixing the roof would just increase the value by $650, then the condition of the roof would be considered incurable.