What is the depreciation of building in Japan?
Japanese buildings have different statutory useful life depending on its structure.
A building’s property value is depreciated within a fixed number of years.
-—-
Structure Legal useful life
Wooden structure 22 years
Steel structure (density less than 3mm) 19 years
Steel structure (density more than 3mm and less than 4mm) 27 years
Steel structure (density over 4mm) 34 years
Reinforced concrete structure 47 years
-—-
For instance, here is a calculation of residual value of a 20 years old reinforced concrete construction condominium building of purchased price JPY100,000,000 (Land JPY50,000,000. Building JPY50,000,000).
-—-
Durable life = (Legal useful life-Building age) + Building age × 20%
(47 years - 20 Years) + 20 years × 20% = Durable life 31 years
Durable life is 31 years, making the depreciation rate 0.033
Depreciation JPY50,000,000 × 0.033 = JPY 1,650,000
JPY1,650,000 is the deduction amount you can use as expenses each year.
-—-
Tings you need to be careful of.
Once a durable lifespan has past on papers, a building value is considered to have zero value. This can make it difficult to receive financial loans from banks.
Consequently, you will have to find a cash buyer since banks will not lend out any loans for purchasing an old building.
In addition, you may be subjected to transfer tax from the profit you received between a building value and a selling price.
-—-
In the case you have the above-mentioned property in possession for 10 years and have sold it for JPY130,000,000.
Value of the building at the time of purchase JPY50,000,000 - Depreciation JPY1,650,000 × 10 years = JPY33,500,000
If the sold building value comes out to be JPY 65,000,000, the calculation will be JPY65,000,000 – JPY33,500,000 = JPY31,500,000. JPY31,500,000 being the amount that is subjected to capital gain tax.
(For information on capital gain tax please click BLOG)
Whether if it’s a reinforced concrete, steel, or wooden structure, there are pros and cons.
While holding ownership of a building, you can save on tax by claiming building depreciation as expense. However, you need to keep in mind that you might not be able to sell that old property you have purchased.
Written by Tsuyoshi Hikichi
-—-
At Azuki Corporation we provide advice to find the best property based on our client’s request. We are here for you, please do not hesitate to contact us with any questions.
For real estate advice please press HERE