Depreciation is the reduction of the value of an asset over a period of time. In other words, depreciation can be used as a measure to show how much value of an asset has been used up.
For example, let’s say that you bought a house for $200,000 10 years ago. How much do you think it is worth today? It could be less or more than what you spent on it.
If your house is now worth $175,000, we will say that your house lost value in the past 10 years. In this case, your house is down $25,000 or 12.5%. The amount you lost on the property is your depreciation value.
You can think of the depreciation as the opposite of appreciation. Instead of losing money on the property, you make money on it. This is called appreciation.
What causes depreciation ?
The causes of depreciation are different depending on the type of asset you have and its sector. For example, your car could depreciate faster than your house.
In addition, there is less chance that your car will regain its original value. However, your house can regain its value easily when the market bounces back up.
Some of the causes of depreciation include but not limited to the market, nature of the asset, natural catastrophe, economic conditions, less to no housing development in the area, etc.
