Depreciation is defined as a loss in value from which of the following sources?

Depreciation is comprehensively understood as a decrease in value due to various factors that affect a property's worth over time. The correct choice identifies three primary sources of depreciation: physical depreciation, functional obsolescence, and economic (external) obsolescence.

Physical depreciation refers to the wear and tear a property experiences due to age, usage, and environmental factors. This aspect of depreciation is straightforward, as properties inevitably age and suffer from deteriorative effects.

Functional obsolescence relates to a property becoming less desirable or valuable due to changes in market preferences or inefficiencies in design. For example, a home with outdated features may not appeal to modern buyers, leading to decreased value.

Economic obsolescence occurs when external factors impact the value of a property, such as changes in the neighborhood, economic downturns, or new regulations that negatively affect property desirability. This type of depreciation is often beyond the control of the property owner.

Each of these components contributes significantly to the overall depreciation of a property, which is crucial for property tax assessments and investment evaluations. Understanding these sources helps stakeholders recognize the complexities involved in valuing real estate.