What is the initial step needed when estimating depreciation using the capitalization of income method?

Estimating the cost new of improvements is crucial when using the capitalization of income method to estimate depreciation. This method focuses on the income that a property can generate, which is influenced by the total investment made in the property. Knowing the cost new helps establish a foundation for determining how much value has been lost over time due to wear and tear or obsolescence. This costs baseline allows assessors to accurately evaluate depreciation by comparing the current income against the potential income derived from a property in its optimal condition.

Understanding this initial step is key because it ensures that the subsequent calculations related to income and depreciation are grounded in a realistic assessment of the property's value. A clear view of the cost new enables the assessor to map the journey of value loss over time, impacting the overall estimation process.