When calculating depreciation, what is the effect of marketability and sales prices?

The impact of marketability and sales prices is integral to understanding depreciation, particularly in the context of property valuation. When considering depreciation, marketability refers to how easily a property can be sold in the market, and sales prices reflect the actual transaction values that properties command.

Depreciation is not merely a straightforward calculation based on costs or accounting practices; it also encompasses how external factors, including market conditions and desirability, affect a property's value over time. The true measure of depreciation must account for these variables because they influence how much value diminishes in the eyes of potential buyers and investors.

For instance, if a property becomes less marketable due to changes in the neighborhood, economic downturns, or shifts in buyer preferences, it will likely incur higher depreciation than anticipated based solely on direct costs. Similarly, if sales prices in an area decline due to market trends or other factors, this can directly adjust the perceived value and, consequently, the depreciation considered in assessments.

Understanding that depreciation reflects these broader economic factors enables a more comprehensive approach when assessing property value for tax purposes, ensuring that assessments are aligned with actual market conditions and expectations. This relation between depreciation and marketability underscores why the consideration of market conditions is deemed the true measure of depreciation in property assessments.