In the property and casualty insurance industry, Actual Cash Value (ACV) is a method of valuing insured property, or the value computed by that method. Actual Cash Value (ACV) is not equal to replacement cost value (RCV). ACV is computed by subtracting depreciation from replacement cost.
You have a fire loss at your home that was built in 1980. The fire causes $100,000 RCV in damages. The insurance company deducts $30,000 in depreciation from the RCV of $100,000 and issues an ACV payment of $70,000.
You would only be able to recover the depreciation of $30,000 if you incurred that expense over the ACV payment of $70,000. The insurance company would require additional documentation (i.e. receipts, contractor’s invoices, and/or a completion inspection) before the recoverable depreciation could be paid.
The deduction based on the age and useful life of that item(s).