Expensive items you use for a long time — such as a PC, a car, or a building (fixed assets) — cannot be expensed in full in the year you buy them. Splitting the cost over the years of use and expensing it little by little is "depreciation." Without knowing the mechanism, people often feel puzzled — "I bought something expensive, but it didn't save as much tax as I expected." But once you grasp the three lines of ¥100,000, ¥200,000, and ¥300,000, the judgment becomes much simpler. This article organizes the basics of depreciation, useful life, the straight-line and declining-balance methods, and the special provision for low-value assets, with concrete examples.
What is depreciation (why you can't expense it all at once)
An asset costing ¥100,000 or more that you bought for use in your business is treated as a "fixed asset," and the amount by which its value declines through use is recorded each year as an expense (depreciation expense). This is based on the idea of matching revenues and expenses: it apportions the cost of an asset that generates revenue over a long period to each of the years in which it produces that revenue.
Three lines determined by the amount (most important)
The method of expensing changes depending on the acquisition cost. First, get this branching straight.
| Acquisition cost | Treatment |
|---|---|
| Under ¥100,000 | Expense the full amount in the year of purchase (as consumables, etc.)[National Tax Agency No.2100] |
| ¥100,000 or more but under ¥200,000 | Lump-sum depreciable assets: depreciated evenly over 3 years (with the benefit of being outside the scope of depreciable-asset tax) |
| ¥100,000 or more but under ¥300,000 (blue-return small and medium-sized businesses) | Special provision for low-value depreciable assets: expensed in full that year (up to ¥3 million a year in total)[National Tax Agency No.5408] |
| ¥300,000 or more | Ordinary depreciation: depreciated each year over the useful life |
The special provision for low-value depreciable assets available to blue-return small and medium-sized businesses is currently "under ¥300,000" (until March 31, 2026 [Reiwa 8]), but under the fiscal 2026 (Reiwa 8) tax reform it is scheduled to be raised to "under ¥400,000" on and after April 1, 2026, with the application deadline also extended to March 31, 2029 (Reiwa 11) (the annual total cap of ¥3 million is left unchanged).
For an asset costing ¥100,000 or more but under ¥200,000, a blue-return small or medium-sized business can choose between two methods. The difference is depreciable-asset tax (a type of fixed asset tax). Lump-sum depreciable assets (even over 3 years) are outside the scope of depreciable-asset tax, while the special provision for low-value depreciable assets (immediate full expensing) is within the scope of depreciable-asset tax. Use them differently: if you want to expense the full amount right away, use the low-value special provision; if you hold many assets and want to hold down depreciable-asset tax (1.4% a year on a tax base of ¥1.5 million or more), use lump-sum depreciation.
Useful life (over how many years you expense it)
Assets costing ¥300,000 or more are depreciated over the "statutory useful life" set by law for each type of asset[National Tax Agency No.2100]. The main examples are as follows.
| Asset | Example of statutory useful life |
|---|---|
| PC | 4 years |
| Kei (light) car | 4 years / ordinary car 6 years |
| Office desk / chair (metal) | 15 years |
| Wooden apartment (residential) | 22 years / reinforced concrete 47 years |
* For used assets, you can estimate a shorter useful life according to the years already used (simplified method).
Straight-line method and declining-balance method
Straight-line method
- Depreciates the same amount each year
- The default for sole proprietors. Buildings, building attachments, and structures are straight-line only
- Simple to calculate
Declining-balance method
- Depreciates more early on and less later
- Selectable for corporations' machinery, equipment, etc. (individuals choose it by filing a notification)
- Advantageous when you want to expense early
Annual depreciation expense = ¥300,000 × 0.2 = ¥60,000 (expensed over 5 years)
* If it is used for both business and private purposes, only the business-use portion is an expense.
FAQ
From what amount is depreciation required?
Assets with an acquisition cost under ¥100,000 can be expensed in full in the year of purchase. ¥100,000 or more is in principle depreciated, but blue-return small and medium-sized businesses can expense assets under ¥300,000 (scheduled to become under ¥400,000 from April 2026) in a lump sum under the special provision.
Do I also depreciate a car bought used?
Yes. However, because a used asset can have a shorter useful life estimated according to the years already used, it may be possible to expense it faster than a new one (calculation by the simplified method).
Which do sole proprietors use — the straight-line or declining-balance method?
Individuals use the straight-line method in principle. If you want to use the declining-balance method, a prior notification is required. Buildings, building attachments, and structures are set as straight-line only.
What do I do with an asset used for both private and business purposes?
Reasonably estimate the proportion used for business (business-use ratio), and record only that portion as depreciation expense.
Summary
Reference links (sources)
This article is based on the following materials published by the National Tax Agency (neutral, primary sources). Useful lives and special provisions are subject to revision, so please check the latest content before filing.
- National Tax Agency No.2100 Overview of depreciation (in Japanese)
- National Tax Agency No.2106 Depreciation by the straight-line and declining-balance methods (in Japanese)
- National Tax Agency — Low-value depreciable assets and lump-sum depreciable assets (in Japanese)
- National Tax Agency No.5408 Special provision for low-value depreciable assets of small and medium-sized enterprises (in Japanese)
* This article is general information, not tax advice. For individual judgments, please confirm with a tax office or a tax accountant.