Recoverable Depreciation: Holdbacks, Deadlines and State Rules

The lines on your estimate

Most people meet recoverable depreciation as a column on a claim estimate. The Travelers estimate guide prints a legend for its estimates: if depreciation is recoverable, the amount is shown in parentheses; if it is not recoverable, it is shown in angle brackets. Other carriers’ layouts vary, so read the legend on yours before adding anything up.

Line	Meaning	What it does to the money
RCV	Quantity times unit cost	The full repair price
Depreciation in ( )	Recoverable	Held back, payable later
Depreciation in < >	Not recoverable	Deducted for good
ACV	RCV minus depreciation	Basis of the first payment
Deductible	Your share of the loss	Comes off the first check
Net claim	After depreciation and deductible	Never above the limit
Total recoverable depreciation	Sum of ( ) amounts	The figure to claim back

The depreciation is a setting, not a fact of nature. The Xactware help article on Xactimate depreciation lists separate switches for depreciating material, non-material costs such as labor and equipment, and removal, and notes that not all carriers and regulatory agencies allow every type. How the unit prices themselves are built is on our how Xactimate pricing works page.

Actual cash value vs replacement cost

The SFIP Dwelling Form defines actual cash value as the cost to replace an insured item at the time of loss, less the value of its physical depreciation. The California Insurance Code section 2051 adds a limit California insurers must follow: a deduction for physical depreciation applies only to components of a structure that are normally subject to repair and replacement during its useful life. Replacement cost is the same repair priced without that deduction.

Which basis applies is set property type by property type. That is why one claim can carry recoverable depreciation on drywall and non-recoverable depreciation on the sofa.

Form	Property	Loss settlement basis
ISO HO-3	Dwelling and other buildings	Replacement cost if insured to 80%
ISO HO-3	Personal property	Actual cash value
ISO HO-3	Awnings, carpeting, appliances, structures that are not buildings	Actual cash value
NJM HO-3	Personal property, carpeting, appliances	Replacement cost (built into this form)
NFIP SFIP	Single-family principal residence	Replacement cost if insured to 80% or the maximum
NFIP SFIP	Personal property, appliances, carpets, detached garages, two to four family dwellings	Actual cash value

Under-insurance changes the result. Per the ISO HO 00 03 05 11, if the building is insured for less than 80% of its full replacement cost, the form pays the greater of actual cash value or a proportion of replacement cost, the insured amount divided by 80% of replacement cost. The SFIP uses a similar formula. Whether the loss is covered at all is a separate question; see does homeowners insurance cover water damage.

The depreciation holdback

The holdback clause in the ISO HO 00 03 05 11 is one sentence: we will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once it is complete, the form settles at replacement cost, capped at the least of the limit, the replacement cost of the damaged part with like kind and quality, and the necessary amount actually spent.

Per the ISO HO 00 03 05 11, the holdback does not apply when the cost to repair is both under 5% of the building limit and under $2,500. Per the SFIP Dwelling Form, the flood policy holds back anything over $1,000 or over 5% of the amount of insurance. Arithmetic per the figures in those forms: the percentage limb only matters for a building insured below $50,000 under ISO wording, or below $20,000 under the SFIP.

Form	Holdback applies	Time condition
ISO HO-3 buildings	Unless under 5% of the limit and under $2,500	Notify intent within 180 days of loss
NFIP SFIP dwelling	Over $1,000 or over 5% of the amount of insurance	Notify intent within 180 days of loss
NJM personal property	Over $500	Notify intent within 180 days of loss
NJM guaranteed replacement cost, if on declarations	Partial loss	Begin repairs within 180 days or receive RC less depreciation
USAA HO-3R(02)	Until repair is complete	Complete within one year; 180-day extension on written request; notify within 30 days

How long you have

No single deadline exists, and the forms do not even measure the same thing. ISO and the SFIP set a notice deadline: tell the insurer within 180 days of the loss that you intend to repair. NJM’s guaranteed replacement cost wording sets a start deadline. The USAA HO-3R(02) form on file in Oklahoma sets a completion deadline of one year, extendable in writing.

California overrides short clocks by statute. Per the California Insurance Code section 2051.5, an insurer may not set less than 12 months from the first actual cash value payment to collect full replacement cost, or less than 36 months for a loss tied to a declared state of emergency, and must grant 6-month extensions when an insured acting in good faith is delayed by permits, materials or contractor availability. The statute also bars policies from limiting replacement cost after a total loss because the owner rebuilds or buys elsewhere, capped at the cost at the original site.

The California Department of Insurance claims guide puts it plainly for contents: you normally need to replace the damaged items before the insurer pays replacement cost, and items you decide not to replace are paid at actual cash value. The time limit that applies to you is printed in your loss settlement condition.

State rules

Regulators have written rules on three questions: how long an owner has, what can be depreciated, and how much may be held back. These describe what insurers must do in those states; they do not say what a given claim pays.

State	Question	Rule	Source
California	ACV holdback and timing	ACV until repaired; at least 12 months, 36 after an emergency	California Insurance Code section 2051.5
California	What can be depreciated	Only components normally repaired or replaced in the structure’s life	California Insurance Code section 2051
California	Labor and itemizing	Repair labor not depreciable; deductions itemized and explained in writing	California regulation 10 CCR 2695.9
Washington	Labor	Repair labor not depreciable, effective 1 January 2022	Washington OIC rule R 2021-04 (WAC 284-20-010)
Florida	Dwelling holdback	At least ACV first, the rest as work is performed; no holdback on a total loss	Florida Statutes section 627.7011
Florida	Contents	Insurer must offer replacement cost with no holdback	Florida Statutes section 627.7011
Texas	What ACV may not deduct	Contractor overhead and profit, and sales tax on materials, HO-B dwelling	Texas Commissioner's Bulletin B-0045-98
Texas	Regulator guidance	First check likely ACV; remainder after repairs start and proof	Texas Department of Insurance disaster claims FAQ

The labor rule is worth quoting. The California regulation 10 CCR 2695.9 says that, except for intrinsic labor included in manufactured goods, the expense of labor necessary to repair, rebuild or replace covered property is not a component of physical depreciation and shall not be subject to depreciation or betterment. The Washington amendment (Washington OIC rule R 2021-04 (WAC 284-20-010)) uses nearly identical words. In Florida, Florida Statutes section 627.7011 lets an insurer limit a roof payment to actual cash value until it receives proof the roof deductible was paid.

Non-recoverable depreciation

These forms make depreciation non-recoverable for six reasons. Some are fixed when the policy is written; others are created by what happens after the loss.

Reason	Where the wording says it	Effect
Property the form settles at ACV	Base ISO personal property, awnings, carpeting, appliances; NFIP contents	Permanent
Items excluded from a contents endorsement	NJM: antiques, memorabilia, unmaintained or obsolete stored items	Permanent
No repair or replacement	ISO pays ACV until work is complete	Becomes permanent
Missed notice or completion window	ISO, SFIP, USAA conditions	Can forfeit the second payment
Under the 80% insurance to value	ISO and SFIP proportional formula	Reduces the second payment
Spent less than the estimate	Capped at amount actually spent	Balance not paid

The last row surprises owners most. Because the ISO cap includes the necessary amount actually spent, a repair finished for less than the estimate does not release the whole held-back figure. Cleaning or restoring contents instead of replacing them is covered in our contents restoration report.

How to get recoverable depreciation

This checklist follows the order the wording sets. It is a reading aid, not advice on your claim.

1. Find your loss settlement condition. Note the basis for each property type and any time limit. Why this differs from generic advice: the deadline might count notice, start or completion, depending on the form.
2. Send written notice of intent to repair early. Why this differs: ISO and the SFIP measure 180 days from the loss, not from the first check.
3. Ask for any extension in writing before the date. Why this differs: the USAA form requires the request during the one-year period, and California ties extensions to good cause.
4. Keep the paid invoice and the contract scope. Why this differs: the second payment is capped at the amount actually spent, so proof of payment is the evidence that counts.
5. Photograph the completed work room by room. Why this differs: the Texas regulator says the remainder follows once you have started repairs and show proof.
6. Match receipts to the estimate’s contents lines. Why this differs: on contents, the form or endorsement may pay per receipt rather than in one sum; Florida’s statute describes that receipt-by-receipt process.
7. Send the package and request the recoverable total. Why this differs: the figure to request is the total recoverable depreciation line, not the whole depreciation column.

The proof itself is covered on our proof of loss page, and a check made out to the lender as well on our insurance check and mortgage company page.

When the gap is bigger than paperwork

• Labor depreciated in California or Washington. Both rules bar it; ask for the calculation in writing, which California’s regulation requires.
• A depreciation percentage with no explanation. California requires deductions to be measurable, itemized and explained to the claimant in writing.
• A deadline that permits or contractors will miss. Request the extension in writing before it passes.
• Overhead and profit or sales tax removed from ACV in Texas. The 1998 bulletin addresses that for Form B.
• A dispute over the amount. The ISO appraisal clause applies to the amount of loss.

At that point a licensed public adjuster or attorney should read the policy; see public adjuster fees and your state insurance department.

For contractors: the completion package

For a restoration or rebuild contractor, the held-back amount is released, per the ISO wording, only once repair is complete, so the owner needs proof from the job file. The package below maps each document to the clause it satisfies. Typical rebuild price ranges are on our water damage restoration cost page.

Document	Clause it answers
Final invoice marked paid	Amount actually spent cap
Signed contract and scope	Like kind and quality
Completion photos by room	Repair is complete
Change orders with reasons	Differences from the estimate
Permit and inspection sign-off	Good-cause delay record
Materials invoices	Material line pricing

Write change orders in the estimate’s line terms, keep permit dates, since California’s statute names permit delays as good cause, and invoice what was actually done.

Questions people actually ask

What is recoverable depreciation?

It is the depreciation an insurer withholds from a replacement cost claim and pays after the repair or replacement is complete. The ISO HO-3 pays actual cash value first, then settles at replacement cost, capped at the amount actually spent, once the work is done.

How do I get recoverable depreciation?

Complete the repair or replacement, keep the paid invoices and photos, and send them to the insurer within the policy’s time condition. The Texas Department of Insurance says the remainder is sent once you have started repairs and show proof. Your loss settlement condition sets the details.

How long do I have to claim recoverable depreciation?

It depends on the form. The ISO HO-3 and the NFIP flood policy ask for notice of intent to repair within 180 days of the loss. One USAA form allows one year to complete, plus 180 days on written request. California requires at least 12 months from the first ACV payment, 36 after a state of emergency.

What is non-recoverable depreciation?

Depreciation that is deducted permanently. It applies to property the policy settles at actual cash value, such as personal property on the base ISO HO-3, and to amounts never released because the work was not done, was done for less, or missed a time condition. Travelers estimates print it in angle brackets.

Can insurance depreciate labor?

It depends on the state and the policy. California regulation 10 CCR 2695.9 and Washington’s rule both say repair labor is not a component of physical depreciation. Xactimate has a setting that depreciates non-material costs such as labor, and Xactware notes not all regulators allow every type.

Do I get recoverable depreciation if I don’t repair?

Under the ISO HO-3 wording, no: the form pays no more than actual cash value until actual repair or replacement is complete. The California Department of Insurance says items you decide not to replace are paid at actual cash value. Florida law requires a contents option with no holdback whether or not you replace.