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How To Calculate Home Depreciation

Posted February 14, 2010 by Matthew Denton

There’s a simple way to determine your home’s loss of value

Depreciation affects the sales price of your property. Appraisers have to correctly provide an approximation of your house’s fair market value. Determining your home’s depreciation can help you in a lot of ways. For example, you can reduce your income taxes by claiming depreciation as a tax expense.

Depreciation is the loss of value in real property due to age, physical deterioration or functional or economic obsolescence. There are complicated ways of calculating for depreciation but one that is most widely used is the straight-line depreciation that assumes your property losses its value by an equal amount annually.

The first step is to find out your home’s useful life or the number of years set by the Internal Revenue Service that depreciable property is expected to be in use. The IRS has a depreciation table that you can download on this link .

Once you identify the useful life or your property, you can now compute for the depreciation rate. Divide the useful life in years into 100 percent.

For example, if it’s a 20-year useful life:

100 percent / 20 = 5 percent depreciation per year

Let’s assume that you paid $500,000 for your house. Now, suppose you want to determine the value of your home after 6 years, all you have to do is to multiply the annual depreciation 6 times.

5 percent depreciation per year x 6 years = 30 percent

Subtract it from 100 percent.

100 percent – 30 percent = 70 percent

Your home will be 70 percent worth from its original value. To determine its monetary value, multiply 70 percent by the amount that you paid for the house.

0.70 x $500,000 = $350,000

Your home’s value will only be $350,000 assuming that it depreciates an equal amount each year.

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