Value is Lower When Depreciation is an Operating Expense: A Current Issue

  • April 11, 2010
  • • Written by: Donald R. Epley, Ph.D., CCIM, MAI 

Spring 2010, Vol. 35, No. 1

Abstract: This article examines the correct use of the depreciation deduction in the estimation of net operating income. A difference in procedure exists between the typical accounting viewpoint that it should be included in operating expenses, as opposed to the real estate analysis which uses it only to lower taxable income. The contrast is important in the estimation of value and the overall capitalization rate.