Recoverable depreciation explained for roofing and restoration contractors: ACV vs RCV, the holdback, and how to collect it once the job is done.
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On most insurance roofs and restoration jobs, the first check is not the whole job. The carrier holds back a chunk called recoverable depreciation, and you only see it after the work is finished and the right paperwork reaches the right desk. Miss a step and that money sits in limbo for months, or disappears when the policy deadline passes.
I ran restoration companies for more than 14 years, and the depreciation holdback was one of the most common reasons a "finished" job still showed up in our 60 and 90-day buckets. The work was done. The homeowner was happy. Nobody had sent the carrier the final invoice and the certificate of completion, or the homeowner had cashed the release check and forgotten we were owed it.
This guide explains how recoverable depreciation works, the difference between ACV and RCV, where it fits in the roof insurance claim process, and a step-by-step routine for collecting it on every job.
KEY TAKEAWAYS
Recoverable depreciation is the part of an insurance claim that the carrier withholds from the first payment and pays later, once the damaged property has actually been repaired or replaced. It exists because of how replacement cost policies settle claims.
When an adjuster writes an estimate, they price the full cost to replace the damaged items at today's prices. That is the replacement cost value. Then they subtract depreciation for age and wear. A 12-year-old shingle roof is not worth what a new one costs, so the estimate shows a lower number, the actual cash value. The carrier pays the ACV first, minus the deductible. The difference between RCV and ACV is the depreciation holdback.
If the policy is a replacement cost policy, that holdback is "recoverable." The homeowner gets it back by completing the work and proving the cost. If the policy only pays actual cash value, the depreciation is non-recoverable and nobody is getting it, no matter how good your paperwork is.
Tip: The Texas Department of Insurance puts it simply in its consumer guidance: actual cash value is replacement cost minus depreciation, and depreciation is a decrease in value because of wear and age. That is the definition most adjusters work from in every state.
Every insurance estimate you get from a carrier shows both numbers. Learn to read them before you sign a contract, because they tell you how the money will arrive.
| Term | What it means | What it means for your cash |
|---|---|---|
| RCV (replacement cost value) | Full cost to repair or replace at current prices | The most the carrier will pay for the approved scope, before the deductible |
| Depreciation | Reduction for age, wear and condition | Held back until the work is complete (if recoverable) |
| ACV (actual cash value) | RCV minus depreciation | What the first check is based on |
| Deductible | The homeowner's share of the loss | Subtracted from the first check. You collect it from the homeowner. |
| Non-recoverable depreciation | Depreciation the policy will never pay back | The homeowner owes it if they want the full job done |
The quick check: if the estimate summary shows a line like "Recoverable Depreciation" or "Depreciation (Recoverable)", the holdback is coming back once the job is done. If it shows "Non-Recoverable Depreciation", that amount is a gap the homeowner has to cover, and you need to say so in writing before you start.
In hail-prone areas, a lot of homeowners have policies or endorsements that only pay actual cash value on the roof, or pay the roof on a schedule based on its age, even if the rest of the house is covered at replacement cost. TDI has warned Texas homeowners that in areas with a history of hail, some companies offer only ACV coverage for roofs. On those claims there is no holdback to recover. Read the estimate and the declarations page with the homeowner before signing, not after the tear-off.
Here is the typical roof insurance claim process from your side of the table. Carriers and policies vary, but the money nearly always moves in this order.
| 1 | Claim filed and inspected. The homeowner files, the adjuster inspects, and you are often there for the inspection to point out damage. |
| 2 | Estimate issued. The carrier sends an estimate showing RCV, depreciation, ACV and the deductible. |
| 3 | First check (ACV minus deductible). Usually made out to the homeowner and often the mortgage company too. You collect this as your first draw. |
| 4 | Work completed, supplements filed. You do the job and submit supplements for anything missed, such as code items, drip edge, extra layers or decking. |
| 5 | Completion documents sent. Final invoice, certificate of completion and photos go to the carrier, through the homeowner or with their written permission. |
| 6 | Depreciation released. The carrier issues the recoverable depreciation plus any approved supplement, again usually to the homeowner. |
| 7 | Final payment and deductible. The homeowner pays you the released depreciation and their deductible. Now the job is closed. |
Steps 5, 6 and 7 all happen after your crew has left. That is where the money gets stuck. For more on dealing with each payer, read our guide on how restoration contractors collect from carriers, adjusters and homeowners.
Here is how the numbers play out on a typical replacement cost roof claim. The company, homeowner and amounts are made up for illustration.
EXAMPLE
Contractor: Ridgeline Exteriors (example)
Homeowner: Dana Brooks, 88 Cedar Ridge Lane
Policy: Replacement cost, $1,500 deductible
| Line on the carrier estimate | Amount |
|---|---|
| Replacement cost value (RCV) | $18,400.00 |
| Less recoverable depreciation (30%) | ($5,520.00) |
| Actual cash value (ACV) | $12,880.00 |
| Less deductible | ($1,500.00) |
| First check from the carrier | $11,380.00 |
How Ridgeline gets the full $18,400:
Total: $18,400.00. If the depreciation step is missed, Ridgeline is short 30% of the job, which on a roof is usually most of the profit.
Example company, homeowner and amounts are made up for illustration.
If you file a supplement that gets approved, it normally comes with its own RCV, depreciation and ACV split. Track that as a fourth balance so it does not get lumped in and lost.
This is the routine that worked for us. The hard part is doing it on every job while the crews are already on the next roof.
Confirm the policy settles on replacement cost, find the depreciation line, and note whether any of it is non-recoverable. Look for the loss settlement wording that says how long the homeowner has to complete repairs and claim the holdback. Write that date in your job file.
Your contract should say that the homeowner will pay the first insurance check, the released depreciation, any approved supplement and the deductible, and when each is due. It should also say who will send completion documents to the carrier. Our roofing invoice template shows how to lay these lines out so homeowners and insurers both understand them.
Many carriers will only discuss a claim with the named insured unless they have a signed authorization. Get it at signing, not when you are chasing the release. Be clear about what you are doing, too. In Texas, for example, Insurance Code section 4102.163 bars a contractor on the job from acting as the homeowner's public adjuster. You can send documents and ask for status. You should not negotiate the claim on the homeowner's behalf unless your state allows it.
Before, during and after photos, the material invoices, the permit and final inspection, and any code items you added. Carriers release depreciation on proof, and missing photos are the most common reason a release gets kicked back. See our guide to bulletproof documentation for what to capture on every job.
Do not wait for the homeowner to ask. The package that gets depreciation released usually includes:
The adjuster controls the release, but they are not your customer and they are not the one paying you. Ask for status and documentation needs on a weekly cadence. Never send an adjuster or carrier a payment link. Our post on working well with insurance adjusters covers how to keep that relationship productive.
The release check almost always goes to the homeowner, and sometimes to the mortgage company as well. Tell the homeowner it is coming, ask them to let you know when it arrives, and send them a payment link for the depreciation and deductible balances. If a lender is on the check, start the endorsement process early. Our guide on mortgage companies controlling your payments walks through it.
Every replacement cost policy sets a window for completing repairs and claiming the holdback. The policy wording comes first, and state law can set a floor under it. A few examples, with the source to read:
| State | What the rule says | Source |
|---|---|---|
| California | A policy cannot give less than 12 months to collect replacement cost. For losses tied to a declared state of emergency, the floor is 36 months from the first ACV payment, with extensions for good cause. | California Insurance Code section 2051.5 and California Department of Insurance notices |
| Florida | For a dwelling under a replacement cost policy, the insurer must initially pay at least the actual cash value, and pays the remaining amounts as the work is performed and expenses are incurred. | Florida Statutes section 627.7011 |
| Texas | TDI defines ACV as replacement cost minus depreciation. Policyholders must pay their own deductible, and contractors may not waive, rebate or absorb it. | Texas Department of Insurance consumer guidance; Texas Insurance Code Chapter 707 |
| Everywhere else | Many policies use 180 days or one year, but some count from the date of loss, some from settlement, and some only require notice of intent within that window. | The loss settlement section of the homeowner's policy and your state's insurance code |
This is not legal advice. Insurance law and policy forms change and vary by state and by carrier. Check your state's statute and the policy in front of you, and talk to a construction attorney before relying on any deadline. If a job is going to run long, have the homeowner send the carrier written notice of intent to repair early.
When I look back at the depreciation balances we wrote off or fought for months to collect, almost every one came down to the same handful of misses.
| What went wrong | How to stop it |
|---|---|
| Completion docs never sent | Make the certificate of completion part of the final walkthrough, and send the package the same day. |
| Homeowner kept the release check | Tell them in the contract and again at completion that the depreciation is part of your price. Follow up the week the check is expected. |
| Invoice did not match the scope | Mirror the carrier's line items, and handle anything extra as a supplement or a separate homeowner change order. |
| Deadline passed | Record the policy deadline on the job at signing and set a reminder well before it. |
| Nobody owned it | The project manager moved on and the office did not know the holdback existed. Track it as its own open balance with a named owner. |
| Non-recoverable depreciation was a surprise | Show the homeowner the gap before signing and get their agreement to pay it in writing. |
One more that deserves its own line: do not "eat" the deductible to win the job. Besides costing you money, it is illegal in some states. Texas, for one, prohibits contractors from waiving, rebating or absorbing a deductible under Insurance Code Chapter 707, according to TDI's guidance for homeowners.
Bring one overdue invoice.
Bring an insurance job with a depreciation balance still open. We'll show you how it would be tracked and followed up until it's paid.
Restoration has the same holdback, just spread across more line items. Mitigation is often paid in full because it is emergency service, but rebuild work (drywall, flooring, cabinets, paint) is usually settled the same way as a roof: ACV first, depreciation after completion. Contents are often handled separately again, depending on the policy and the state.
That means one water or fire loss can have a mitigation invoice, a rebuild ACV draw, a rebuild depreciation release, a contents balance and a deductible, each moving on its own clock. If you are billing these through one giant invoice, it is very hard to tell which piece is late. Split them, and follow up on each. Our guide to restoration insurance billing goes deeper on structuring claims so carriers pay them cleanly, and our restoration page shows how other restoration companies keep these balances moving.
The fix for most of this is boring: every holdback needs a due date, an owner and a follow-up schedule. That is where software earns its keep.
AR Workflow syncs with QuickBooks so each open balance on an insurance job, including the depreciation release and the deductible, shows up on an aging dashboard instead of hiding inside a "completed" job. It runs automated payment reminders to the homeowner by email, text and ringless voicemail from a dedicated number, with a payment link they can use from their phone. It pauses when someone promises a date and stops when the balance is paid. Adjusters get status requests only, never a payment link. Roofing teams can see how this works on our roofing page.
Usually the homeowner, because they are the policyholder. The check may also name the mortgage company. Some carriers will pay a contractor directly if the homeowner signs a direction to pay, but you should plan to collect the depreciation from the homeowner once it arrives.
It depends on the policy and the state. Many policies use 180 days or one year, counted from the date of loss or from settlement. California sets a minimum of 12 months, and 36 months for losses tied to a declared state of emergency. Read the loss settlement clause and check your state's statute.
It is a short document signed by the homeowner and the contractor confirming that the work in the carrier's scope is finished, with the completion date, claim number and property address. Carriers commonly ask for it, along with a final invoice and photos, before they release recoverable depreciation.
Recoverable depreciation is paid back once the work is completed on a replacement cost policy. Non-recoverable depreciation is never paid back, usually because the policy or a roof endorsement settles on actual cash value. The homeowner owes any non-recoverable amount if they want the full scope done.
Replacement cost policies generally pay what was actually spent to repair or replace, up to the RCV limit. If your final invoice is lower than the estimate, expect the carrier to release only enough depreciation to cover the actual cost. Send an invoice that reflects the real price of the job.
No, and in some states it is illegal. Texas prohibits contractors from waiving, rebating or absorbing a policyholder's deductible. Collect the deductible from the homeowner like any other balance, and check your own state's rules.
Related reading
Your invoice, not a feature tour.
Bring one overdue invoice to a demo, even a depreciation release that has been sitting for months, and see what AR Workflow would send, when, and to whom.
Photos: Unsplash. This article is general information, not legal advice. Sources: California Insurance Code section 2051.5; Florida Statutes section 627.7011; Texas Department of Insurance consumer guidance on replacement cost and actual cash value; Texas Insurance Code Chapters 707 and 4102.
Sam owned and ran three restoration companies for more than 14 years and collected over $100 million in receivables. He built AR Workflow in 2020 to give contractors the collections system he wished he'd had.
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