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Depreciation Formulas for Real Estate

Depreciation, net book value, obsolescence… When properties start to lose value, and you want to estimate that loss, the math can get complicated sometimes. But even if the number of formulas seems to be overwhelming, we are here to help you! In the chart below, you’ll find the essential depreciation formulas that will help you ace your Real Estate test! Use them to solve our FREE sample problems and flashcards for the Real Estate License Exam.

Also, be sure to look at our formula charts for the Real Estate Areas of:

Tax and Credit

Measurement

Percentages, Interest, and Mortgages.

Depreciation Formulas

Category Formula Symbols Comment
Depreciation \(ADA=\frac{IC}{EL}\) ADA = Annual Depreciation Amount
IC = Initial Cost
EL = Economic Life
Straight Line Depreciation
Depreciation \(B=PC-C-Dt\) B = Basis
PC = Property Costs
C = Credits
Dt = Deductions
 
Depreciation \(NBV=B-D\) NBV = Net Book Value
B = Basis
D = Depreciation
 
Depreciation \(DE=PPNBV \cdot \frac{2}{YUL}\) DE = Depreciation Expense
PPNBV = Prior Period Net Book Value
YUL = Years in Useful Life
Double Declining Balance Method
Depreciation \(NDD=AA-OC\) NDD = Normal Deficiency
AA = Addition Amount
OC = Original Cost
Functional Obsolescence
Depreciation \(MD=OC-WTS+RC\) MD = Modernization Depreciation
OC = Original Cost of the Replaced Items
WTS = Existing wear and tear and salvage
RC = Replacing Costs
Functional Obsolescence
Depreciation \(SaD=RRC+AC\) SaD = Superadequacy Depreciation
RRC = Removing and replacing Costs
AC = Altering Costs
Functional Obsolescence
Depreciation \(V=\frac{I}{R}\) V = Value of Property
I = Net Income
R = Capitalization Rate
 
Depreciation \(TEL=EA+REL\) TEL = Total Economic Life
EA = Effective Age
REL = Remaining Economic Life
 

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