If you own the property you run as a short-term rental in Japan, depreciation (減価償却) is probably the largest single line item you can deduct — and one of the most misunderstood by foreign operators.

I’ve spoken to investors who bought properties in Japan, ran them as Airbnbs for two or three years, and never once claimed depreciation because they didn’t know they could. I’ve seen others deduct over the wrong useful life because they misread the table. Neither is a great outcome. Here’s how it actually works.

TL;DR

  • Japan lets you depreciate the building (never the land) over a statutory useful life determined by construction type.
  • Wooden buildings (木造) depreciate over 22 years; reinforced concrete (RC) over 47 years.
  • Used buildings get a shorter remaining useful life via formula — sometimes as few as 4 years — which front-loads your deductions significantly.
  • Depreciation is a non-cash deduction that reduces taxable 不動産所得 (real estate income) without any additional cash outflow.
  • Furniture and appliances have separate, shorter depreciation schedules — and items under ¥100,000 can often be expensed immediately.

What Is 減価償却, and Why Does It Matter for STR Operators?

Depreciation is the annual deduction you take for the gradual wearing-out of a capital asset. For rental property, it means you can deduct a portion of the building’s value each year against your rental income — reducing taxable income without any actual cash leaving your account.

That last part is the key insight. You already spent the money when you bought or renovated the property. Depreciation lets you spread that cost as a deduction across many future years. For STR operators who show healthy revenue on paper but have heavy upfront acquisition costs, these non-cash deductions can make a meaningful difference to the real tax bill.

What Can You Depreciate?

Buildings only — land is never depreciable in Japan.

Japanese tax law (所得税法) treats land as having no wearing-out, so it holds no depreciable value. At purchase, you must separate the building value from the land value. If the contract doesn’t break this down explicitly (some don’t), you’ll use the fixed asset tax (固定資産税) valuation or an appraisal to allocate. Getting this split right matters — undervaluing the building means you’re leaving deductions on the table.

Beyond the main structure, you can also depreciate:

  • Permanent building improvements (renovation of walls, floors, ceilings)
  • Furniture and appliances used as part of the rental
  • Equipment costing over ¥100,000 per unit (items below that threshold can often be expensed in the year of purchase)

What Are the Useful Life Periods by Building Type?

Japan assigns a statutory useful life (法定耐用年数) to each construction type. For residential and lodging properties, the key ones are:

Structure Japanese Term Useful Life
Wood 木造 22 years
Light steel (≤3mm) 軽量鉄骨造 19 years
Light steel (3–4mm) 軽量鉄骨造 27 years
Heavy steel (>4mm) 重量鉄骨造 34 years
Reinforced concrete 鉄筋コンクリート造 47 years

The annual depreciation rate is simply 1 ÷ useful life. A wooden building depreciates at roughly 4.5% per year; an RC building at roughly 2.1%. Since 2007, buildings must use the straight-line method (定額法) — a fixed amount each year rather than a declining balance.

How Does the Used Building Formula Work?

This is where things get genuinely interesting for buyers of older Japanese properties.

If you buy a used building, you don’t depreciate over the full statutory period. You calculate a remaining useful life instead:

  • Building already older than its statutory life: remaining life = statutory life × 20% (minimum 2 years)
  • Building still within statutory life: remaining life = (statutory life − elapsed years) + (elapsed years × 20%), rounded down

Example: You buy a 30-year-old wooden property. Statutory life for wood is 22 years. Since 30 > 22, remaining useful life = 22 × 20% = 4.4 → rounds down to 4 years. You depreciate the entire building value over just 4 years.

This is a well-documented feature of Japan’s tax code. Buyers of older wooden machiya or pre-bubble apartments can front-load substantial deductions in the early years of ownership. Whether that timing benefit suits your situation depends on your income level in those years — it’s worth modelling carefully with your tax accountant rather than assuming faster is always better.

How Is the Annual Deduction Calculated?

Formula (straight-line method):

Annual depreciation = Building acquisition cost × Depreciation rate

If you paid ¥20,000,000 for the building portion of a wooden property with a 22-year useful life, your annual deduction is roughly ¥20,000,000 × 0.046 = ¥920,000 per year.

One Japan-specific quirk: assets are depreciated down to a minimum residual value of ¥1 (not zero). The final year of depreciation is adjusted to hit that floor.

Where Does This Appear on Your Tax Return?

For most STR operators, rental income falls under 不動産所得 (real estate income) on Form B of the 確定申告. Depreciation is reported on the 不動産所得の内訳書 and flows through as a deductible expense against your rental revenue.

If your operation is large or structured in a way that qualifies as 事業所得 (business income) — generally five or more properties, or operating at a scale deemed a business — some rules shift slightly. Most small operators with one to three properties are solidly in 不動産所得 territory.

What About Furnishings and Equipment?

The furniture and appliances you stock your STR units with have their own depreciation schedules:

Item Typical Useful Life
General furniture 8 years
Air conditioner 6–13 years
Refrigerator, washing machine 6 years
TV 5 years

Items under ¥100,000 per unit can usually be fully expensed in the year of purchase. Items between ¥100,000 and ¥300,000 have an optional immediate deduction election for qualifying small businesses. When you’re furnishing a whole apartment before your first guest checks in, knowing this threshold can meaningfully change what you expense now versus depreciate over years.

The Gross-to-Net Gap

I’ve written before about how gross yield headlines hide Japan’s operating cost reality — OTA commissions, cleaning, utilities, and compliance costs routinely consume 30–50% of revenue before debt service. Depreciation is one of the few places where the accounting works in your favor.

Revenue looks the same whether you’re tracking depreciation or not. But your taxable income — and actual tax liability — can look very different depending on how many years of depreciation remain on the building. At BenStay, the depreciation runway on a given property is a factor we consider alongside occupancy assumptions and cap rates. It doesn’t show up in gross yield figures, but it absolutely shows up in cash-after-tax returns.

FAQ

Q: Can I claim depreciation on a property I only rent out part of the year?

Yes, but only proportionally. If a property is rented for 8 months and vacant or personally used for 4 months, you can claim roughly 8/12 of the annual depreciation. Keep clear records of rental periods as supporting documentation.

Q: My renovation cost ¥3,000,000 before I listed the property. Can I depreciate that?

Costs that extend the building’s useful life or add lasting value (資本的支出) are capitalized and depreciated — usually at the same rate as the building itself. Minor repairs that simply restore current condition (修繕費) are expensed immediately in the year incurred. The boundary between the two is one of the most common grey areas on the 確定申告, and worth confirming with a tax professional for any renovation over a few hundred thousand yen.

Q: What happens when the building is fully depreciated?

The deduction stops. The building stays on your books at ¥1, and all future rental income from that property is fully taxable unless offset by other deductions. Some operators time major renovations or exit decisions around the end of the depreciation period — when the deduction disappears, the effective tax cost of holding the property rises noticeably.

This post is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional (税理士) for advice specific to your situation.