Depreciation of Used Condos in Japan: The Simplified Method
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Written by: Licensed real estate broker in Japan, 10 years at a listed real estate company, now a salaried landlord
Run your own numbers
Enter the price, rent, loan and your salary to see the monthly cash flow, the tax refund and a 35-year projection. Runs in your browser.
Short answer
A used building can be depreciated over a shorter useful life than a new one (the simplified method).
That raises your deductions now, but tax is only postponed: it comes back when you sell.
The formula
Part of the statutory life has passed
(statutory − elapsed) + elapsed × 20%
The whole statutory life has passed
statutory × 20%
This comes from Article 3 of the Ministry of Finance ordinance on useful lives. The statutory life of a reinforced concrete residential building is 47 years, and building equipment (plumbing, electrical, gas) is 15 years.
A 14-year-old concrete condo
| Part | Calculation | Useful life |
|---|---|---|
| Building structure | (47 − 14) + 14 × 20% = 35.8 | 35 years |
| Building equipment | (15 − 14) + 14 × 20% = 3.8 | 3 years |
Reinforced concrete (statutory 47 years) by building age
What that means each year
In the example the ¥22 million price is split into land 40% and building 60% (¥13.2 million), and 30% of the building is equipment. Land is never depreciated.
| Part | Cost | Life | Per year |
|---|---|---|---|
| Structure | ¥9,240,000 | 35 years | ¥267,960 |
| Equipment | ¥3,960,000 | 3 years | ¥1,322,640 |
| Total (years 1–2) | ¥1,590,600 |
Depreciation over time (example)
For a salaried owner this is why the tax refund is concentrated in the first three years. In year 4 rental income turns positive and the refund stops. You can see the same pattern with your own numbers in the condo simulator.
Tax is postponed, not removed
Every yen of depreciation lowers the cost basis of the property. When you sell, the taxable gain is the sale price minus that lower basis, so a short useful life now means a larger gain later. After ten years the example has deducted ¥6,639,599 of depreciation, and that amount is added back through the capital gain. See selling property in Japan.
Details: when you can use the method and common mistakes
Rules
- Decide in the first year: you choose the simplified life in the year you start renting out the property. You cannot switch later.
- Large renovations: if you spend more than 50% of the purchase price on improvements, the simplified method may not be allowed.
- Straight-line only: buildings, and building equipment acquired on or after April 1, 2016, use the straight-line method.
- First year by months: if you start renting in October, you deduct 3/12 of a year.
- Building price: the sales contract often states the consumption tax; since land is not subject to consumption tax, that figure lets you derive the building price.
A former home you start renting out
If you rent out a home you used to live in, a different rule applies: depreciation for the years you lived there is calculated at 1.5 times the normal life, which reduces the remaining basis.
Why equipment matters so much
Frequently asked questions
Q. Do I have to use the simplified method?
Q. Can I change the useful life later?
Q. Is the equipment ratio fixed at 30%?
Run your own numbers
Enter the price, rent, loan and your salary to see the monthly cash flow, the tax refund and a 35-year projection. Runs in your browser.
More articles
- Investing in a Tokyo One-Room Condo as a Foreign Resident
- Tax Refunds from a Japanese Rental Condo: The Loss Offset
- Gross vs. Net Yield in Tokyo: Reading the Real Cash Flow
- Selling Property in Japan: Capital Gains Tax and the 5-Year Rule
- Can Foreigners Buy Property in Japan? Rules, Steps and Costs
- Renting Out Japanese Property from Abroad: 20.42% Withholding
- Selling Japanese Property as a Non-Resident: 10.21% Withholding
- Leaving Japan with a Rental Condo: What Changes for Tax
These articles explain how the system generally works. They are not tax, legal or investment advice for your situation. Check with the tax office, your municipality or a licensed tax accountant.