PSI Oklahoma Real Estate Practice Test

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How is depreciation best defined?

  1. Increase in value over time

  2. Loss of value from any cause

  3. Value added by improvements

  4. Value based on market fluctuations

The correct answer is: Loss of value from any cause

Depreciation is best defined as the loss of value from any cause. This concept applies to various assets over time due to factors like wear and tear, physical deterioration, or changes in market demand. In real estate, depreciation is particularly relevant because it accounts for the gradual decline in property value, which may result from aging, economic shifts, or changing neighborhood dynamics. Understanding depreciation is crucial for evaluating property investments and determining tax deductions, as it recognizes that not all properties appreciate but may lose value based on their condition or the economic environment.

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