Fixed assets such as buildings and vehicles that value declines in process of time, are called depreciable assets.
Acquiring cost of depreciable assets is not deductible at a time in the year of purchase as a necessary expense. Instead, divided amount by using depreciation method can be deductible as necessary expenses for each year of the useful period of the asset.
Statutory durable years as useful periods of assets and corresponding depreciation rates to be used for calculating a depreciation expense are stipulated in the Ordinance of the Ministry of Finance.
However, with regard to assets of which useful period is less than one year, or of which acquisition cost is less than 100,000 yen, you shoud deduct full amount of acquisition cost at a time in the year of beginning of business use.
You calculate necessary expense by depreciation methods such as Straight-line method and Declining-balance method for fixed assets acquired on and after April 1, 2007, or Former Straight-line method or Former Declining-balance method for fixed assets acquired before that date.
However, you cannot use Declining-balance method or Former Declining-balance method if your fixed asset is as follows:
(a) Buildings acquired on and after April 1, 1998.
(b) Facilities attached to buildings and structures other than buildings acquired on and after April 1, 2016.
You have a choice of depreciation method with respect to each type of asset through a prior notification, or otherwise you should use statutory depreciation method. In the case of income tax for individual, Straight-line method or Former Straight-line method is generally applied.
(Example)
In the case of your question, if your vehicle is brand-new and for ordinary passenger’s use with a displacement of more than 660cc, statutory durable years is 6 years. Depreciation rate of 6 years is 0.167 as for Strait-line method or 0.333 as for Declining-balance method.
| Straight-line method | Acquisition cost × Depreciation rate for Straight-line method |
| Declining-balance method | Undepreciated balance × Depreciation rate for Declining-balance method ("depreciation amount before adjustment") However, once the amount above falls below “guaranteed depreciation amount”, the following formula will be applied for the remaining years: Revised acquisition cost × Revised depreciation rate |
| (Note 1) | If you acquired or demolished fixed assets in mid-year, the depreciation amount above should be apportioned by the ratio of the number of months during which the asset was used for business out of 12 month of the year. |
| (Note 2) | The guaranteed depreciation amount refers to the amount calculated by multiplying the acquisition cost of the asset by the guarantee rate according to its useful life. |
| (Note 3) | Revised acquisition cost represents the undepreciated balance at the beginning of the year in which the depreciation amount before adjustment first falls below the guaranteed depreciation amount. |
| (Note 4) | Revised depreciation rate refers to the depreciation rate revised according to the useful life of the asset so that the depreciation amount will correspond to the revised acquisition cost. |
| Straight-line method | 2022 | 1,000,000 × 0.167 × 10 / 12 = 139,617 yen |
| 2023 | 1,000,000 × 0.167 = 167,000 yen | |
| Declining-balance method | 2023 | 1,000,000 × 0.333 × 10 / 12 = 277,500 yen |
| 2023 | (1,000,000 − 277,500) × 0.333 = 240,593 yen |
* Since you purchased (and began to use) the vehicle in March 2022, you need to apportion the depreciation amount for 2022 by the ratio of months of business use (10 months) out of a year.
| Former straight-line method | Acquisition cost × 90% × Depreciation rate for Former Straight-line method (Multiplication of 90% is not necessary for intangible assets such as fishing right and patents.) |
| Former declining-balance method | Undepreciated balance × Depreciation rate for Former Declining-balance method Undepreciated balance represents the amount obtained by deducting accumulated amount of depreciation expenses until previous year from the amount of acquisition cost. |
| (Note 1) | If you acquired or demolished fixed assets in mid-year, the depreciation amount above should be apportioned by the ratio of the number of months during which the asset was used in business out of 12 month in the year. |
| (Note 2) | After the year when accumulated depreciation amounts to 95% of the acquisition cost, equal depreciation based on the amount of that the book value at the beginning of the year minus 1 yen is applied for five years until the book value come down to 1 yen. |