When Does Depreciation Start in Japan? First-Year Month Rules and Timing Strategy

Status as of April 2026: In force. The month-based allocation rule is codified in Income Tax Act Enforcement Order Article 131 (所得税法施行令第131条) for individuals and Corporation Tax Act Enforcement Order Article 59 (法人税法施行令第59条) for corporations. NTA reference: Tax Answer No. 2100 (Japanese). Last verified: 2026-04-18.

Note on currency conversions: dollar amounts in this article use an indicative rate of approximately ¥150 = US$1, rounded for readability. Actual rates fluctuate; readers should apply current market rates for their own calculations.

The depreciation clock starts on the day the property is placed in service, not on closing. But that is only half of the Year 1 question. The other half is: how much of the annual depreciation does the filer actually get in that first year?

The answer — for anyone thinking about optimizing first-year deduction — is decided entirely by the calendar. A property placed in service in January captures twelve months of depreciation. A property placed in service in December captures one. Between those two extremes sits a roughly ¥11 million swing on a ¥12 million annual schedule, all driven by the month of acquisition.

Japan’s first-year rule is unusually blunt: full months, no pro-rata for the day. A placed-in-service date of July 1 and a placed-in-service date of July 31 are indistinguishable on the return. This creates timing leverage — and, for U.S. dual filers, an asymmetry with the U.S. system that is worth understanding.

The Month-Based Allocation Rule

Enforcement Order Article 131 sets the first-year allocation formula:

First-year depreciation = Annual depreciation × (Months from placed-in-service month through year-end) ÷ 12

A property placed in service in July gets 6/12 of the annual amount (July through December). In March, 10/12. In November, 2/12.

Corporate taxpayers use the same logic against the fiscal year under Enforcement Order Article 59 of the Corporation Tax Act.

Under the NTA’s general depreciation guidance (Tax Answer No. 2100 (Japanese)), any fraction of a month is rounded up — any portion of a month in service counts as a full month. The formula is simple. What makes it consequential is this full-month counting rule that sits on top of it.

The Full-Month Counting Rule

The placed-in-service month counts as a full month regardless of the day within the month.

A single day’s difference at the month boundary — June 30 versus July 1 — changes first-year depreciation by one-twelfth of the annual amount. On a ¥12 million schedule, that is ¥1 million.

This rule is generally favorable to the filer when placed-in-service occurs late in a month, and neutral when it occurs early. The only place it bites is at the month boundary: crossing from June 30 to July 1 costs a full month of Year 1 deduction.

The January-vs-December Math

Here is the full first-year impact, using a ¥12 million annual depreciation (typical of a ¥48 million building under the 4-year simplified method for used wooden property):

The difference between January and December, on the same property at the same price, is ¥11 million of first-year expense — roughly ¥5.5 million of first-year tax savings at a top-bracket marginal rate (45% national income tax per NTA Tax Answer No. 2260 (Japanese), plus 10% local resident tax = 55% combined for income over ¥40 million).

Over the full four-year depreciation cycle, the total depreciation is the same (¥48 million). What changes is when the deduction is recognized. Accelerating the deduction into a high-income year can be worth millions in present-value terms — particularly for filers with variable income (bonus years, stock-vest years, large distribution years).

What’s Negotiable and What’s Not

Three levers affect when a property ends up placed in service. Some are controllable; some are not.

Closing date (sometimes negotiable). A seller who wants to close in November might be persuadable to close in late December — or, more usefully, in early January of the following year. For an off-market transaction, closing dates are often set to accommodate both parties’ tax planning. This is a legitimate discussion topic early in negotiations.

Renovation completion date (highly controllable). If the buyer takes possession and renovates before renting, the placed-in-service date is when renovation ends and marketing begins. Front-loading the renovation schedule to complete in December instead of January can shift the placed-in-service date into the current tax year — or, conversely, delaying the final-walkthrough date by a day or two can push it into the next year.

Tenant solicitation date (fully controllable). For a vacant property, the placed-in-service date is the day the property goes up for rent. The brokerage engagement letter can be dated and executed the day after handover — or any day after the property is actually ready to show. Within the facts, the filer controls which day is chosen.

What is not negotiable is any attempt to document a placed-in-service date that isn’t supported by facts. The NTA reviews handover records, broker engagement letters, lease dates, and rental portal listings. Backdating against documentation will fail on audit, and the penalties include both tax recomputation and delinquency charges.

Mid-Month Convention — The U.S. Comparison

For U.S. persons owning Japanese property, the timing rule on the U.S. return is different, and the difference compounds in Year 1.

MACRS mid-month convention. On the U.S. return, residential rental real estate placed in service on any day of the month is treated as placed in service on the 15th of that month (IRS Publication 946). A property placed in service on July 1 is treated as if placed on July 15; a property placed in service on July 31 is also treated as if placed on July 15. First-year depreciation reflects only half of the placed-in-service month.

For a July placed-in-service date:

• Japan: 6 full months (July–December) × annual depreciation × 1/12 = half the annual amount
• U.S. MACRS: 5.5 months of first-year deduction (half-July plus August–December), applied against the 27.5-year useful life for residential rental

On the same Japanese property:

• The Japanese return captures six full months in Year 1
• The U.S. return captures five-and-a-half months, on a much longer useful life (27.5 years residential vs. 4 years under the simplified method for used wooden property)

The combined effect: Japanese Year 1 depreciation is both timed more generously (full-month vs. mid-month) and spread over a far shorter useful life. This is the mechanical source of why the 4-year strategy produces outsized Year 1 benefit on the Japanese return for U.S. filers — the Japanese rules are faster on both dimensions.

The two schedules do not offset each other. The U.S. return continues its 27.5-year schedule; the Japanese return runs its 4-year schedule; neither affects the other’s calculation. The only interaction is through the foreign tax credit (Form 1116), which is based on Japanese tax actually paid — not on schedule matching. At eventual sale, U.S. §1250 depreciation recapture applies on the U.S. side (capped at a 25% rate) against accumulated U.S. MACRS depreciation, separately from the 20.315% Japanese long-term rate that applies to the Japanese basis. See Placed-in-Service Date in Japan for the fuller U.S.–Japan reconciliation at exit.

Reporting on the Tax Return

The depreciation schedule on the Blue Return Financial Statement (青色申告決算書) or White Return Income Statement (収支内訳書) requires both the acquisition year/month and the placed-in-service year/month, along with the business-use month count. The full details — which fields need which dates, what documentation supports each entry, and the common filing errors — are covered in the placed-in-service date guide.

Why This Matters for the 4-Year Play

The 4-year depreciation strategy on used wooden buildings produces roughly ¥10 million of annual depreciation on a typical ¥40 million building purchase. Year 1 is the single highest-value year of the schedule, because a January placed-in-service date captures the entire ¥10 million against current-year high-bracket income.

The rest of the strategy — the roughly 35-percentage-point spread between the ~55% deduction rate and the 20.315% long-term capital gains rate on real estate held for more than five years (NTA Tax Answer No. 3208 (Japanese): 15% national + 5% local + 0.315% special reconstruction surtax) — is constant. What the investor controls in Year 1 is timing. Getting the placed-in-service date into January rather than December is worth up to ¥4.5 million of first-year tax, on nothing more than calendar positioning.

For any foreign investor evaluating a 4-year candidate, the timing question should be answered before the contract is signed. By the time closing happens, the opportunity is already priced in — or priced out.

Related Reading

• Placed-in-Service Date in Japan — the date that starts the clock
• 4-Year Depreciation on Used Wooden Buildings — the strategy this timing powers
• Japanese Real Estate Tax Basics for Foreign Investors

This article is for general informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance on your specific situation. U.S. readers: per IRS Circular 230, nothing in this article may be used to avoid penalties under the Internal Revenue Code.