Depreciation cost ( Genka shokyaku hi = 減価償却費 ) of used real estate…

Old house and calculation of depreciation cost in Japan

Assumed that you have purchased a old real estate (more than 22 years old). 

This house has elapsed all its statutory durable years.

In the case a real estate has completed, used up, elapsed  its statutory durable years ( useful life, Taiyo nensu = 法定耐用年数 ), Modified durable years ( Mitsumori taiyo nensu = 見積り耐用年数 ) can be used.

Modified durable years ( Mitsumori taiyo nensu = 見積り耐用年数 ) =  statutory durable years × 0.2

Example

You buy wooden real estate for renting out.
It was built in 1980.
Assumed today is 2016.
Statutory Durable years of  wooden house is  22 years.

So, this real estate has used up its all Statutory Durable years.

But, you can still apply for  depreciation cost and reduce amount of tax. years.

Modified durable years is ” 22 years × 0.2 = 4.4 years “

In the case of calculation of durable years of commercial real estate ( Including real estate for rental ), fraction of less  than 1 year shall be cut off.

So, in this case, Modified durable years is 4 years.

You can depreciate your real estate with 4 years.

In the case a real estate has completed its a part of statutory durable years ( useful life, Taiyo nensu = 法定耐用年数 )

In the case you purchase a used real estate that has not used up its statutory durable years.

In this case, Modified durable years ( Mitsumori taiyo nensu = 見積り耐用年数 ) =  statutory durable years – elapsed years + ( elapsed years × 0.2)

 

Example

You buy reinforced concrete apartment for renting out.
Price for building is 5,155,731 yen.
It was built in September, 1990.
You buy this apartment in December, 2013.

Statutory durable years of reinforced concrete apartment  is 47 years ( = 564months ).

Elapsed months are from September, 1990 to December, 2013 = 22 years + 4 months + 12 months = 280 months.

So, modified durable years is
564 months – 280 months + ( 280 months ×0.2 ) = 284 months + 56 months = 340 months = 28.3333 years.

This 28.3333 years is modified durable years of this apartment.

In the case of calculation of durable years of commercial real estate ( Including real estate for rental ), fraction of less  than 1 year shall be cut off.

So, modified durable years are 28 years.

Now, you can find that modified durable years of this apartment is 28 years.

Depreciation rate is different from durable years .

Depreciation rate is like this.
depreciation rate of real estate in Japan

depreciation rate excerpt

depreciation rate excerpt

The shorter durable years, the higher depreciation rate.

Calculation of amount of undepreciated balance

 

Depreciation rate corresponds to modified durable years of 28 years  is 0.036.

You buy this apartment in December, 2013 at 5,155,731 yen.

The amount of depreciation cost = acquisition price × depreciation rate × operating months ÷12 months.

The amount you write at tax filing paper as undepreciated balance =acquisition price -total of depreciation cost.

Depreciation cost in 2013 : 5,155,731 yen × 0.036 × 1 month ÷ 12 months=15,468 yen

So, undepreciated balance ( 未償却残高 = Misho kyaku zandaka ) in 2013 : 5,155,731 yen –  15,468 yen = 5,140,263 yen.

Depreciation cost in 2014 is 5,155,731 yen × 0.036=185,607 yen
Undepreciated balance in 2014 is 5,140,263 yen – 185,607 yen = 4,954,656 yen

Depreciation cost in 2015 is 5,155,731 yen × 0.036=185,607 yen
Undepreciated balance in 2015 is 4,954,656 yen – 185,607 yen = 4,769,049 yen
Depreciation cost in 2016 is 5,155,731 yen × 0.036=185,607 yen
Undepreciated balance in 2016 is 4,769,049 yen – 185,607 yen = 4,583,442 yen
….
Repetition
……
…..
Undepreciated balance in 2040 is 128,874 yen.

The annual amount of depreciation cost ( 185,607 yen ) is higher than the amount of Undepreciated balance in 2040.( 128,874 yen ).

In this case, depreciation cost is 128,874 yen -1 yen =128,873 yen.
So, Undepreciated balance in 2041 is 128,874 yen – 128,873 yen = 1 yen.

Now, depreciation process of this real estate is finished.

If you need any help to calculate depreciation cost, you can contact me.

Depreciation cost ( Genka shokyaku hi = 減価償却費 ) of used real estate... 1

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