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Depreciation of buildings with mixed structures and purposes in Japan

Depreciation of buildings with mixed structures and purposes in Japan

Assuming you purchased a 5-story building in Japan to start your real estate investment, the tenant on the first floor is running a restaurant, while the tenants on the second to fifth floors are using their units as residences.

🌸On this page, I will explain the depreciation expenses for a single building with different usage and structure.

You purchased a used building with the characteristics mentioned above for 100 yen.(built in May 2002.)

If you were to purchase a residential building made of steel frame and reinforced concrete, its statutory useful life is determined to be 47 years by law.

In other words, instead of treating the purchase cost of 100 yen as an expense in the year of purchase, you should gradually treat it as an expense over a period of 47 years (in the case of a new building).

However, your building is a used one and was built in May 2002. Assuming it is now April 2023, the building has been standing for 20 years and 11 months (251 months).

In this case, the depreciation expense formula is as follows

20 years and 11 months × 20% = 50.2 months.(return of the number of years elapsed)

(47 years – 20 years and 11 months) + 50.2 months

= 335 months + 50.2 months

= 385.2 months

= 32.1 years.

The depreciation rate for a useful life of 32 years is 0.032

100 yen × 0.032 = 3.2 yen

So, you can record 3.2 yen as a depreciation cost every year.

There are 9 months from April to December.

So you can account for depreciation expense of 3.2 yen / 12 months x 9 months = 2.39 yen this year.

However, in the case of this building, the usage (a mix of commercial and residential) is combined.

The calculation of the depreciation expense in this case shoud not be separated between the first floor and floors 2-5.

Rather, the entire building is considered, and if the building is being used as a residence, including the first floor, it is treated as a residential property.

Similarly, even if the first floor is made of reinforced concrete and steel and floors 2-5 are made of wood, the same logic applies.

If the entire building can be considered a wooden building, the depreciation expense should be calculated as such.

As for depreciation cost, you can also read this page.