Value Is Lower when Depreciation Is an Operating Expense: A Current Issue (Feature‪)‬

INTRODUCTION STANDARD ACCOUNTING PROCEDURE DEDUCTS DEPRECIATION as an operating expense when computing the NOI for real property. (1) When the resulting NOI is incorporated in an estimate of value using NOI/R, the final estimate is lowered due to the deduction. In contrast, standard procedure used by the real estate profession, including appraisers, counselors and financial analysts, uses the depreciation amount only as a deduction in the calculation of taxable income from the property. (2) The NOI is unchanged and, consequently, the final value estimate is unaffected.