A 10-year-old roof originally cost $20,000 to install and has a 20-year useful life. The current replacement cost is $25,000. The home's market value is $180,000. What is the Actual Cash Value (ACV) of the roof?

Why this is the answer

ACV is calculated as Replacement Cost (RC) minus depreciation. Here: useful life = 20 years, age = 10 years, so depreciation rate = 10/20 = 50%. Depreciation = 50% x $25,000 = $12,500. ACV = $25,000 - $12,500 = $12,500. Market value ($180,000) reflects the whole property's real-estate value — irrelevant to individual component ACV. The original cost ($20,000) is a distractor; ACV always uses current RC, not historic cost, when computing depreciation.