Economic life is defined as the period of time over which a property may be profitably used.

• A. The property’s physical age
• B. The time until major components must be replaced
• C. The period of time over which a property may be profitably used
• D. The duration of mortgage financing

Answer: (C)

Economic life is the period of time over which a property may be profitably used. This focuses on profitability, meaning the income generated by the property, after operating costs and any needed capital expenditures, continues to exceed the investment and maintenance costs. A building can be physically usable for a long time, yet its economic life may end sooner if rents don’t cover expenses or if upgrading becomes too costly relative to the expected returns. Conversely, a property might be older but still financially viable if it continues to produce strong cash flow with reasonable maintenance. This concept is different from the property’s physical age, which just tells you how old the structure is, and from the time until major components must be replaced, which concerns physical upkeep and replacement schedules rather than overall profitability. It also isn’t about how long mortgage financing lasts, which is a financing term. The description that aligns with economic life is the period during which the property can be profitably used.