Which statement best describes a value-based property appraisal for tax purposes?

• A. Market rent only
• B. Ability to generate rental income
• C. Tax history
• D. Replacement cost

Answer: (B)

Value-based property appraisal for tax purposes looks at what the property can earn, not just what it costs or what it rents for today. In practice, this means using the income approach: estimate net operating income (rent plus other income minus operating expenses) and convert that income into a value using a capitalization rate. The result reflects the property's ability to generate profits for an investor, which is what tax assessors often use to determine value for tax purposes.

That’s why the statement about the ability to generate rental income is the best description. It focuses on the property's earning potential, rather than just current rent (which is only part of the picture), replacement cost (which is a cost-based measure), or tax history (which doesn’t directly measure value).