Home & Property
Depreciation
The reduction in value of property over time due to age, wear, and obsolescence, used to calculate actual cash value settlements.
Last reviewed: May 2026 · Editorial methodology
Definition
Depreciation is the monetary reduction applied to property value to account for aging, wear and tear, and functional obsolescence, and it is central to actual cash value (ACV) calculations. When an insurer settles a claim on an ACV basis, it estimates the replacement cost of the damaged item and then subtracts a depreciation factor based on age and expected useful life. A 10-year-old roof with a 20-year life expectancy, for example, might be depreciated 50%, so a $20,000 replacement-cost roof yields only a $10,000 ACV payment. The IRS has its own depreciation schedules for tax purposes, but insurance depreciation schedules vary by carrier and are not always disclosed to policyholders. Policyholders with replacement-cost coverage can recover the depreciation amount (called recoverable depreciation) after completing the repairs and submitting final invoices. Items with long useful lives — like concrete foundations or copper plumbing — carry little or no depreciation, while electronics and flooring depreciate quickly.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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