Depreciation on a property is calculated based on which factors?

Depreciation on a property is calculated based on the price of the property, capital improvements made to it, and the land value. This method reflects the concept that depreciation applies to the building and other improvements, not the land itself, because land does not typically lose value over time like structures do.

To elaborate, the total property price represents the initial investment, while capital improvements are the additional investments that enhance the property's value and extend its useful life. Subtracting the land value from this total allows for a more accurate calculation of depreciation on the actual improvements, as the land is expected to maintain or increase its value over time. This approach is essential for investors and real estate professionals who need to accurately assess the value of properties and make informed decisions regarding their investments.

Considering the other options, market trends may influence the overall property value but do not directly factor into the calculation of physical depreciation. Aggressive depreciation schedules refer to methods that affect tax accounting but don’t contribute to a precise calculation of depreciation based on asset value. Tax assessments can impact property taxes but are not a direct formula for calculating depreciation itself. Hence, focusing specifically on the correct method, as indicated, reveals that the interplay of the property price, improvements, and land value is