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Loan and Mortgage Terms Glossary

Sum-Of-The-Digits Depreciation:

A method of calculating the depreciation of residential property authorized by the 1969 tax reform act. For example, assuming a structure has 20 useful years, its number of useful life-years would be calculated by adding: 1+2+3+4+5+6+7+8+9+10+11+12+13+14+15+16+17+18+19+20=210 years. This becomes the denominator in the calculation of the depreciation value in any given year. The numerator is the number of years remaining in the useful life of the property; in the first year this would be 20, in the second year 19, etc. Thus, the formula for establishing the deprecation value in the first year would be 20/210 times the depreciation base.

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