Real Estate Rental Income Tax in Japan
The income received when renting out a real estate property in Japan is counted as part of your taxable income. It may seem frustrating at first if you don't know where to ask or how things are calculated. Here in this easy to follow guide, we will explain what rental income taxes can affect real estate investments and how they are calculated.
How to calculate your real estate rental income tax
The amount of income tax that will need to be paid is calculated by multiplying an applicable tax rate by your total taxable income (employment income + real estate rental income – tax deductions and allowances).
1. How to calculate your rental real estate income
The total taxable income from renting out real estate properties is calculated by subtracting the nessesary expenses from the gross rental income.
Real estate rental income amount = 1.1 gross rental income – 1.2 necessary expenses
1.1 Example of Gross Rental Income
- ・ House rent, Land rent
- ・ Key money
- ・ Renewal fee
- ・ The portion of the security deposit and guarantee money that the owner is not required to return to the renter
- ・ Common area maintenance fees including electric bills, water bills, cleaning charges, etc.
1.2 Details of Necessary Expenses Eligible for Deduction
The following expenses are counted as “necessary expenses” for those who have rental income from a house.
|Various real estate taxes||Real estate acquisition tax paid upon purchase of property
Property Buying Costs and Taxes in Japan
Fixed Asset Tax and City Planning Tax for real estate owned
Fixed Asset Tax and City Planning Tax
|Insurance fees||Insurance coverage such as fire insurance and earthquake insurance|
|Depreciation expense||Acquisition costs of a building shall be divided equally by the statutory useful life of new construction or used property and the divided amount shall be included in each year’s necessary expenses.|
|Repair expenses||Costs for restorating the property to its original state, costs for replacement of facilities such as a water heater, air conditioner, etc.
(Costs to increase the value or durability of a property shall be included in capital expenditures and shall not be included in repair expenses).
|Interest rate on borrowing||Only the interest of the total loan repayment amount|
|Management fee to a property management company||Fee to a management company for collecting house rent from tenants, handling problems, and advertising for new tenants.|
|Management fee, Repairing fund, etc.||Fees to a condominium management association.|
|Other necessary expenses||Fee to a certified tax accountant on a final income tax return, transportation, and communication expenses for real estate leasing|
|Special deductions from filing a tax return Blue Form||When you have filled out a blue tax return form at a local tax office and the filing has been approved, you may receive a deduction up to JPY650,000. This is from the income amount of real estate leasing business, or you may have deduction of JPY100,000 from a small real estate income amount. (The deduction amount shall be amended for the 2020 tax year).|
2. How to calculate your total taxable income
Taxable income amount = Real estate rental income + Income from employment + other income - Tax deductions and allowances*
* Tax deductions and allowances are meant to adjust the amount of tax to be paid taking into consideration the taxpayer’s personal situations, such as the number of their dependent relatives eligible for tax deduction (e.g. deduction for spouse, deduction for dependents).
3. How to calculate your income tax total
Income tax amount = Taxable income amount × an applicable income tax rate – an applicable credit amount
Applicable income tax rates and applicable credit amounts are listed in the below rapid calculation table.
Rapid calculation table for Income tax
|Taxable income amount||Tax rate||Credit amount|
|Not exceeding JPY1,950,000||5％||―|
|Not exceeding JPY3,300,000||10％||JPY97,500|
|Not exceeding JPY6,950,000||20％||JPY427,500|
|Not exceeding JPY9,000,000||23％||JPY636,000|
|Not exceeding JPY18,000,000||33％||JPY1,536,000|
|Not exceeding JPY40,000,000||40％||JPY2,796,000|
|Amounts over JPY40,000,000||45％||JPY4,796,000|
※When a non-resident real estate owner is withholding tax imposed on the house rent income of his/her property, he/she can have the tax amount payable by deducting the withholding tax amount from the sum of the above Income Tax amount and Special Reconstruction Income Tax amount.
How to pay income tax
You should complete the filing of your taxable income and pay your total tax for the tax year (from January 1st to December 31st) within the 1 month period from February 16th to March 15th of the following tax year at the local taxation office. It is called filing an income-tax return. You can adjust the excess and deficiency of your tax amount withheld by filing an income-tax return.
*For each tax year in the period from 2013 to 2037, Special Reconstruction Income Tax (2.1%) shall be imposed in addition to Income Tax.
Yearly income tax returns are usually filed by a person themself or by a certified tax accountant on behalf of the person.
We here at PLAZA HOMES support our customers throughout their various real estate investments and related matters. From purchasing real estate properties and advertising them for tenants, to offering property management services, PLAZA HOMES will be there for you. When filing your yearly income tax return we can help you to submit necessary documents smoothly, in cooperation with English-speaking certified tax accountants.
In the case of an overseas investor
Here is an example of a non-resident overseas investor who purchased real estate, has income from renting out a house in Japan and the income tax applicable to this persons situation.
- Owned real estate property:
- Purchase of a 20 years old pre-owned apartment with reinforced concrete construction.
- Purchase price:
- JPY50,000,000 (Land price: JPY26,000,000, Building price: JPY24,000,000)
- Other income:
- Income tax withheld:
- JPY490,080/year (House rent: JPY200,000/month x 20.42% (Paid by Lessee))
- House rent income:
- JPY2,400,0000/year (House rent: JPY200,000/month)
- Management fee, repairing fund, etc.:
- JPY360,000/Year JPY30,000/Month
- Management fee paid to a property management company:
- JPY120,000/Year JPY10,000/Month
- Fixed property tax and city planning tax:
- Depreciation expense:
- JPY24,000,000 × 0.033 ＝ JPY792,000
(31 years is applied as the statutory useful life of used fixed assets)
- Other expenses:
- Special deductions of Blue Form tax return filing:
- JPY100,000 (In case of a small real estate income)
Example calculation using infromation from above
1. To calculate the real estate rental income
Total House Rent Income JPY2,400,000
Necessary expenses JPY1,772,000
Rental Real Estate Income JPY628,000
2. To calculate taxable income
No other income in Japan, no eligible deductions and allowances
Taxable income amount JPY628,000
3. To calculate the total amount of taxable income See Rapid calculation table for Income tax
JPY628,000×5％ ＝ JPY31,400
4. To calculate Special Reconstruction Income Tax
JPY31,400×2.1％ ＝ JPY659
5. To calculate the amount of taxable income and Special Reconstruction Income Tax for the tax year, add the totals from “3.” and “4.”
JPY31,400 + JPY659 ＝JPY32,059
6. To deduct the income tax amount withheld
JPY32,059 － JPY490,080 ＝ － JPY458,021
After the owner’s filing of an income tax return, part of the amount of taxes withheld (JPY458,021), will be returned to them (in this scenario).
*The above scenario’s sample calculation has been presented with simplified conditions for easier understanding to be used only for refrence.