Repair cost and Capital expenditure in Real Estate in Japan, No.3

Taxation relating to real estate investment in Japan.

In the case she owns real estate for investment and pays money to repair her real estate in Japan, she needs to know what kind of expenditure is deemed to be capital expenditure.

There are some conditions to identify the nature of her payment.

:mrgreen:  If the amount of repair cost  is below 200,000 yen, her payment is deemed to be ordinary repair cost.
So, she can sum up the cost as deductible expense and can deduct the repair cost from her income.

😆 If the amount of repair cost is over 200,000 yen but if she needs to perform this repair every 3 years ( It means this repair is ordinary action. ), her payment to repair is deemed to be ordinary action and her repair cost is deemed to be  ordinary repair cost.
So, she can sum up the cost as deductible expense and can deduct the repair cost from her income.

😯 If the amount of repair cost is over 200,000 yen and she does not need to perform this kind of repair every 3 years ( It means this repair is extraordinary action. ), but her repair does not increase value of her property, her payment to repair is deemed to be ordinary action and her repair cost is deemed to be  ordinary repair cost.
So, she can sum up the cost as deductible expense and can deduct the repair cost from her income.
If her performance of repair lengthen durable years of her property, it means the repair increases value of her property and she cannot deduct the amount of her repair cost from income at once.
And she needs to depreciate her repair cost every year for several years.

That is to say, if she pays some money to restore to previous condition, her payment is deemed to be ordinary repair cost and she does not need to depreciate it.
And if she pays some money to restore her property to better condition than before, she needs to depreciate her payment.

In the case she invested in reinforce concrete building 25 years ago. Outer wall is spraying.
But now she reforms her building and change outer wall with tiling, it costs 3 million yen.

In this case, her payment is deemed to be capital expenditure and depreciation is necessary.
Because, the amount of her payment is over 200,000 yen and she does not need to change outer wall every 3 years and she increases value of her building.

On the contrary, in the case she repairs outer wall with spraying and it costs 2 million yen, her payment to repair is deemed to be ordinary repair cost and does not need to depreciate it.

There are some vague cases to distinguish ordinary repair cost or capital expenditure.
So, before you repair your property in Japan, you need to consult with tax agency or tax accountant ( Zeirishi ) in japan.

When you invest in real estate in Japan, you need to reserve money for future repair.
But, unfotunately you can not deduct the amount of money reserved from your income. Because, you still do not use it.
But, I will introduce a way to reserve a fund to repair without paying income tax.

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