Placed-in-Service Date in Japan: When Depreciation Actually Starts

Status as of April 2026: In force. The placed-in-service rule is codified in Income Tax Act Article 49 (所得税法第49条), with the month-based calculation rule in Enforcement Order Article 131 (所得税法施行令第131条), the “partial first month as whole month” rule in NTA Tax Answer No. 2100 (Japanese), and the operational definition in NTA Tax Answer No. 5400-2 (Japanese). Last verified: 2026-04-18.

Foreign investors asked when their Japanese property’s depreciation started will usually reach for the closing date. It is the wrong answer.

Under Japanese tax law, depreciation starts on the date the property is placed in service (事業の用に供した日, jigyou no you ni kyoushita hi) — the day the building becomes available to produce rental income. For the simplest off-market transaction, that is the closing date. For anything that involves a renovation pause, a vacancy reset, or a new-build commissioning, it is not.

Getting the date wrong — off by even a single month — silently costs money. Under the 4-year depreciation play for used wooden buildings, first-year depreciation is typically worth up to ¥5 million in tax savings (approx. $33K). Every misassigned month costs roughly ¥400,000 (approx. $2.7K). And the National Tax Agency will not let the date be defended on feel — objective documentation is required.

The Rule, in Plain Terms

Article 49 of the Income Tax Act provides that depreciation is calculated from the date the asset is placed in the service of the taxpayer’s business. The National Tax Agency’s Tax Answer No. 5400-2 defines this as “the day on which use of the asset commenced for its intrinsic business purpose.” For income property, that means the day the building is first available to produce rental income — not merely purchased.

Enforcement Order Article 131 sets the month-based rule: first-year depreciation is allocated by whole months, counting from the month in which the asset is placed in service through December. A property placed in service on July 1 and a property placed in service on July 31 are treated identically — both generate six months of first-year depreciation.

Corporate taxpayers follow a parallel regime under Corporation Tax Act Article 31 (法人税法第31条) and Enforcement Order Article 59, with allocation against the corporate fiscal year rather than the calendar year.

Three Dates, One That Matters

Real estate transactions produce three dates. Only one triggers depreciation.

The acquisition date and the placed-in-service date coincide in the simplest scenario — an owner-change property bought with tenants already paying rent, closing and becoming productive on the same day. In every other scenario, they diverge.

Four Scenarios, Four Answers

Owner-Change Property (Tenants in Place)

Placed-in-service date = acquisition (closing) date.

If tenants are paying rent to the previous owner at the moment of closing, the building was already being used for business purposes. Title transfer transfers the ongoing business, and the depreciation clock continues without pause.

This is the cleanest case and the one most common in off-market luxury income-property transactions.

Vacant Property, No Renovation

Placed-in-service date = the day tenant solicitation begins.

A property purchased vacant but immediately put up for rent is placed in service on the day it is listed for tenants and is legally available to occupy. The actual date a tenant signs is irrelevant; what matters is the date the property is offered to the market.

NTA guidance is explicit on this: a rental building completed and actively marketed — even without an actual occupant by year-end — is considered placed in service. The test is availability, not occupancy.

Renovation or Major Repair Before Renting

Placed-in-service date = the day tenant solicitation begins after work completes.

If the buyer takes possession and then renovates before renting, the building is not in service during construction. The clock starts when renovation ends and marketing begins.

Example:

• April 15 — Closing (acquisition)
• June 30 — Renovation complete
• July 1 — Placed in service (tenant listings go live)

First-year depreciation covers July through December: six months.

This scenario carries the largest margin for error. A buyer who starts renovation on the closing date and claims depreciation from that date will be reassessed.

New Construction

Placed-in-service date = day tenant solicitation begins after handover.

Identical logic to the renovation case: construction does not place an asset in service. Handover plus marketing does. The building is not productive until it can accept tenants.

Documentation That Survives an Audit

The NTA will accept a contested placed-in-service date when the filer produces objective records. Standard documents:

• Brokerage listing engagement letter (宅建業者との媒介契約書), which specifies the marketing start date
• Tenant lease agreement (賃貸借契約書)
• Handover confirmation or key receipt (引渡確認書)
• Renovation completion report (工事完了報告書)
• Dated screenshots or printouts from rental portals (SUUMO, LIFULL HOME’S, at-home, etc.)

For vacant properties, the marketing start date — not the lease execution date — is the critical record. Keep the brokerage engagement letter. For renovation cases, keep the work completion certificate.

Three years is the minimum retention period; seven years is safer for high-value properties that may be audited after exit.

Reporting on the Tax Return

On the Japanese individual return, the depreciation schedule attached to the Blue Return Financial Statement (青色申告決算書) or the White Return Income Statement (収支内訳書) requires two distinct date fields:

• Acquisition year/month (取得年月) — the title transfer date
• Placed-in-service year/month (供用年月) — the date used to start the depreciation clock

For corporate taxpayers, Schedule 16 (別表十六) captures the placed-in-service date.

A common filing error is to enter the acquisition date in both fields when they in fact differ. This is flagged on audit: the depreciation calculation will look correct in aggregate, but the month-base will be wrong, and the NTA will recompute.

The “business-use months” (業務供用月数) field records the number of months from the placed-in-service month through December (or, for corporations, the fiscal year-end). A July 15 placed-in-service date produces six business-use months: July through December. The partial first month is counted as a whole month — this rule is documented in NTA Tax Answer No. 2100 (Japanese) on general depreciation.

Three Common Misconceptions

“The placed-in-service date is when the first tenant moves in.” No. The test is when the property is first available for tenancy, not when it is first occupied. A marketing-ready vacant property placed in service on September 1 can sit empty through December and still claim four months of first-year depreciation.

“The placed-in-service date is when I sign the purchase contract.” No. Contract signature is a contractual event, not a business-use event. The building was not yet available to the buyer’s business on the day the contract was signed.

“I can pick the placed-in-service date to optimize my tax position.” No. The date is determined by facts, not by filer election. Pushing the date earlier to capture more first-year depreciation, or pushing it later to shift deductions, will not survive review against the underlying documentation.

What the filer can time is the acquisition itself. Closing in January rather than December can capture up to eleven additional months of first-year depreciation on the same investment. But the date, once fixed by the underlying facts, is fixed.

The U.S. Parallel — and Where It Diverges

For U.S. persons owning Japanese property, the placed-in-service concept is familiar. IRS Treasury Regulation §1.167(a)-11(e) uses nearly identical language: property is placed in service “when it is first placed in a condition or state of readiness and availability for a specifically assigned function.” MACRS depreciation (on the U.S. return) starts from that same date.

Two differences matter.

First, the first-month convention. The U.S. applies a mid-month convention to residential rental real estate: regardless of the exact day, the property is treated as placed in service on the 15th of the month. Japan counts the entire month — day 1 or day 31 — as a full month. On a ¥10 million annual depreciation, Japan’s full-month treatment yields roughly ¥400,000 more in the first year for an end-of-month acquisition than the U.S. mid-month equivalent.

Second, the two clocks run independently. A U.S. person filing both returns on a Japanese property has one placed-in-service event but two sets of consequences — the same calendar day, applied under two sets of rules, with two different useful lives (22 years statutory in Japan, running 4 years under the simplified method for used wooden property; 27.5 years residential for MACRS in the U.S. regardless of age). The U.S. return computes U.S. depreciation; the Japanese return computes Japanese depreciation; they do not reconcile.

The foreign tax credit on Form 1116 is based on Japanese tax actually paid, not on matching depreciation schedules. This is one of the reasons the 4-year scheme works for U.S.-person foreign investors: the Japanese tax reduction reaches the U.S. return only through the FTC mechanism on the eventual exit, and the U.S. MACRS treatment of the same property continues in parallel on its own 27.5-year schedule. At eventual sale, U.S. §1250 depreciation recapture — capped at a 25% rate — applies on the U.S. side to the portion of gain attributable to accumulated MACRS depreciation, separately from the Japanese 20.315% long-term rate computed against the Japanese basis.

Why This Matters for Foreign Investors

For the 4-year depreciation strategy on used wooden buildings, the placed-in-service date is the lever that determines how much first-year tax benefit is captured. A January-placed property captures twelve months; a December-placed property captures one. On a ¥10 million annual depreciation, the difference is ¥9.17 million of expense timing — roughly ¥4.5 million of tax (approx. $30K) at top-bracket rates, deferred or accelerated depending on which end of the calendar the acquisition lands.

This is why sophisticated investors structure acquisitions to close and place in service in the first quarter of the tax year. The closing date can sometimes be negotiated. A renovation timeline can sometimes be front-loaded. What cannot be manipulated after the fact is the documentation of when the building actually became available for rent. The month-by-month calculation rules and the full January-vs-December math are worked through in detail in the companion article.

Get the date right the first time. Keep the records to prove it. When the NTA asks — and for any property claiming 4-year accelerated depreciation, they will — the answer is already on paper.

Related Reading

• When Does Depreciation Start? First-Year Month Rules and Timing Strategy — the companion article on month-based math
• 4-Year Depreciation on Used Wooden Buildings — the strategy this date powers
• Japanese Real Estate Tax Basics for Foreign Investors — the broader framework
• Hong Kong vs. Japan Tax Comparison — why this kind of planning feels unfamiliar from a no-tax jurisdiction

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.