If you acquire a condominium for investment purposes, understanding the depreciation mechanism that allows you to expense the building acquisition cost each year is important for both tax planning and your exit strategy.
What Is Condominium Depreciation?
Depreciation is a mechanism for expensing the acquisition cost of fixed assets held over a long period on an annual basis according to their useful life. For an investment condominium, the building portion is subject to depreciation.
Important: Land is not subject to depreciation. Because land does not deteriorate over time, you need to clearly separate the land portion and the building portion of the acquisition cost.
Building Useful Life and Depreciation Rate
The statutory useful life of residential buildings differs by structure type:
- Wood-frame mortar construction: 20 years
- Wood-frame synthetic resin construction: 22 years
- Steel-reinforced concrete (RC) and reinforced concrete construction: 47 years
- Equipment portion: 15 years
For properties acquired from April 2016 onward, only the straight-line method applies. Formula: Acquisition cost × depreciation rate
Main depreciation rates: useful life 47 years → 0.022, 15 years → 0.067
How to Calculate Depreciation
Example Calculation for a New Condominium
If you purchase a newly built RC condominium with a building price of 20 million yen and equipment worth 5 million yen:
- Building: 20 million yen × 0.022 = 440,000 yen/year (years 1 to 47)
- Equipment: 5 million yen × 0.067 = 335,000 yen/year (years 1 to 15)
- Annual depreciation for years 1 to 15: 440,000 yen + 335,000 yen = 775,000 yen
- From year 16 onward: 440,000 yen (building portion only after equipment depreciation ends)
Example Calculation for a Used Condominium
For a used property, the "remaining useful life" is calculated using the following formula:
（statutory useful life－elapsed years）＋elapsed years×0.2
For an RC condominium that is 10 years old, with a building value of 10 million yen and equipment value of 2 million yen:
- Building useful life: （47−10）＋10×0.2＝39 years → depreciation rate 0.026
- Equipment useful life: （15−10）＋10×0.2＝7 years → depreciation rate 0.143
- Years 1 to 7: 10 million yen × 0.026 + 2 million yen × 0.143 = 260,000 yen + 286,000 yen = 546,000 yen/year
- Years 8 to 39: 260,000 yen/year (building portion only)
Useful Life Differs Between Business and Non-Business Use
The useful life of a business-use investment condominium (RC structure) is 47 years, while non-business use such as a primary residence is 1.5 times longer at 70 years. The depreciation rate is also lower for non-business use at 0.015 versus 0.022 for business use, creating differences in tax burden.
Impact of Repair Costs and Equipment Replacement on Depreciation
The Classification Changes Depending on Whether It Is a Repair Expense or a Capital Expenditure
Repair expenses, such as regular repairs under 200,000 yen made within each three-year period, can be fully expensed in that year. Capital expenditures (improvements that increase value) must be capitalized and depreciated. If the distinction is difficult, consult the tax office or a tax accountant.
Special Rule for Small Depreciable Assets
If you file a blue return, equipment or fixtures costing less than 300,000 yen per item (or per set) can be fully expensed in the year of purchase under the special rule for small depreciable assets. Even for white-return filers, assets costing between 100,000 and 200,000 yen can be collectively depreciated over three years under the lump-sum depreciation asset rule.
Recommended Related Reading
- Real Estate Investment Tax Return Guide | A Complete Explanation of the Process, Required Documents, and Penalties
- Real Estate Exit Strategy in an Era of Inflation and Rising Construction Costs | A Complete Explanation of Whether to Sell or Hold
- Is Real Estate Investment Difficult Because of a Lack of Comprehensive Skills? Explaining the Three Barriers of Tax, Legal, and Construction
Frequently Asked Questions (FAQ)
Q1. I have heard that condominium investment depreciation can reduce taxes. How does that work?
By expensing the building acquisition cost each year, your real estate income is reduced, which lowers your taxable income. In particular, high-income salaried workers can create income tax and resident tax savings by using loss offsetting.
Q2. How does depreciation affect the sale of a condominium?
At the time of sale, the acquisition cost is calculated as "purchase price minus cumulative depreciation to date." The more depreciation has progressed, the lower the acquisition cost becomes and the higher the capital gain on sale becomes, so the tax burden may increase when you sell after holding for a long period. This is an important factor in planning your exit strategy.
Q3. How can I confirm the ratio between land and building?
You can confirm it through the breakdown in the purchase agreement, the ratio of land and building assessed values on the fixed asset tax valuation certificate, or by back-calculating from the consumption tax amount.
Q4. Can a used condominium that has exceeded its statutory useful life still be depreciated?
Even a building that has exceeded its statutory useful life can still be depreciated for a minimum of two years (with fractions rounded down from useful life × 0.2). Example: if an RC structure exceeds 47 years → 47×0.2＝9 years (rounded down → 9 years, with a minimum of 2 years applied).
Q5. Is depreciation treated differently for blue returns and white returns?
The depreciation expense itself is calculated the same way, but the special rule for small depreciable assets (immediate full expensing for items under 300,000 yen) is available only to blue-return filers. To maximize tax efficiency, we recommend choosing a blue return.
