Capital Gains Tax on Property Sales in Japan

Poste date: Monday, January 6, 2025

This guide explains the taxes involved in selling real estate in Japan.

Profits from selling real estate, known as capital gains, are subject to national and local (inhabitant) income tax. Tax rates vary depending on the length of ownership and the property's use. Here is an introduction to the taxation of capital gains and how it is calculated.

Tax on capital gains

Capital gains from the sale of land and buildings are subject to national and local inhabitant tax, separate from other income like employment income. You'll pay taxes on the real estate transfer when you file your annual tax return between February 16th and March 15th of the following year.

1. Calculating Taxable Capital Gains

Taxable capital gains are calculated by subtracting both acquisition costs and transfer expenses from the sale price.

Taxable Capital Gains = Proceeds from the Sale of Real Property – (Acquisition Costs + Selling Expenses)

About Acquisition Costs

Acquisition costs for real estate include the purchase price, plus brokerage fees, registration expenses, revenue stamp fees, and real estate acquisition tax. Depreciation and amortization of the building, calculated based on its age (from the year of completion), may be deducted from the acquisition costs.

About Transfer Expenses

Transfer expenses include brokerage fees, registration fees, stamp duty, demolition costs, and tenant relocation costs.

2. Calculating Tax Liability

The tax is calculated by multiplying the taxable capital gain by the tax rate.

Tax Due = Taxable Capital Gains × Tax Rate

Tax rates vary depending on whether the property was held for less than or more than five years.

■ Ownership Period of 5 Years or Less: Short-Term Capital Gains Tax Rate: 39.63%
(National income tax: 30.63%, Local inhabitant tax: 9%)
■ Ownership Period of More Than 5 Years: Long-Term Capital Gains Tax Rate: 20.315%
(National income tax: 15.315%, Local inhabitant tax: 5% )

 

Note that the calculation of the ownership period for tax purposes may differ from your actual ownership period. The ownership period is calculated from the date of purchase to January 1st of the year of sale.

Example 1: Purchase Date: December 1, 2014

Having owned the property for over five years, you sold it on December 2, 2019.

Calculated Period: December 1, 2014 to January 1, 2019 = 4 years and 1 month

Tax rate = Short-term capital gains

 

You sell the property after January 1, 2020, having owned it for more than five years since January 1, 2015.

Calculated period: 12-01-2014 -> 01-01-2020 = 5 years 1 month

Calculated period: December 1, 2014, to January 1, 2020 = 5 years, 1 month

Tax rate = Long-term capital gains

Example Case 2: Purchase Date: January 10, 2015

You sold the property on January 11, 2020, having owned it for over five years.

Calculated Period: October 1, 2015 to January 1, 2020 = Approximately 4 years, 11 months, and 22 days.

Tax rate = Short-term capital gains

 

You sold the property after January 1, 2021, having already owned it for more than five years as of January 1, 2016.

Calculated Period: October 1, 2015 to January 1, 2021 = Approximately 5 years, 2 months, and (approximately) 22 days

Tax rate = Long-term capital gains

When a Non-Resident sells Japanese real estate

The local inhabitant tax will not apply if the property owner is not a registered resident of Japan as of January 1st of the year following the property transfer. If you have a capital loss (negative taxable capital gain), you don't need to file a tax return. However, if withholding tax was deducted from the sale proceeds, you can file a return to receive a refund.

For details on when withholding tax applies, please refer to "Withholding tax on real estate sales by Non-residents"

www.realestate-tokyo.com/news/tax-on-sale-of-property-non-residents

The tax rates are the same for the sale of a primary residence and investment (rental) property. However, an exception applies when selling a property used as your primary residence.

Exception for the sale of a primary residence

If you sell your current home, or a former home within three years of moving out by December 31st of the relevant tax year, certain tax exceptions may apply, provided you meet specific requirements.

1. When you make a profit from selling your primary residence:

1.1 Special Deduction of JPY 30 million:

 

A special deduction of up to JPY 30 million applies to capital gains from the sale of your primary residence, regardless of whether the gain is long-term or short-term.

Taxable Capital Gain = Proceeds from the Sale – (Acquisition Cost + Selling Expenses) – JPY 30,000,000

If your capital gain from the sale of your primary residence is less than JPY 30 million, you will owe no capital gains tax.

1.2 Reduced tax rate

 

If you sell your primary residence that you've owned for more than 10 years, a reduced tax rate may be applied when calculating the tax on any remaining long-term capital gains after deducting the JPY 30 million special allowance.

Taxable long-term capital gains:

No more than JPY60,000,000 14.21% National income tax 10.21%,
Local inhabitant tax 4%
Over JPY60,000,000 20.315% National income tax 15.315%,
Local inhabitant tax 5%

1.3 Purchasing a replacement residence:

 

If you sell your primary residence and purchase a replacement within three years (the year of sale, the preceding year, and the following year), you may be able to defer capital gains tax. This applies if you meet certain conditions, including owning the property for over ten years as of January 1st of the sale year and having used it as your primary residence for at least ten years, and if the sale price is JPY 100 million or less.

Note, however, that you can choose to apply either the JPY 30 million special deduction (1.1) or the reduced tax rate (1.2), but not both.

2. When you incur a loss on the sale of your primary residence:

If you sell your home after owning it for more than five years (as of January 1st of the year of sale) and incur a loss (as described in sections 2.1 or 2.2), you can deduct that loss from other taxable income in the same year.

If you cannot deduct the loss from the sale of your home against other income in the same year, you can carry it forward as a deduction for up to three years following the year of the sale, provided your total income in those years does not exceed JPY 30 million.

2.1 When purchasing a replacement residence:

 

If you sell your primary residence, purchase a replacement within a three-year window (the year before, during, and after the sale), and have an outstanding mortgage on the new home at the end of the sale year, you may be able to deduct the loss from the sale against other income or carry the deduction forward to future tax years, subject to certain requirements.

2.2 In the case of not purchasing a new house as a replacement residence

 

If you sell your primary residence with an outstanding mortgage as of the day before the sale contract is finalized, you may be able to deduct the resulting loss against other income (up to the difference between the outstanding loan and the sale price) or carry the deduction forward to future tax years, provided certain requirements are met.

For more details, please visit the National Tax Agency website below.

www.nta.go.jp/publication/pamph/koho/kurashi/html/05_2.htm

Exterior of First Real Tower Shinjuku
Sale Property tag

Located an 8-min walk from Shinjuku Station is a large-scale tower apartment which stands along Otakibashi-dori Street and overlooks the hustle and bustle of the downtown Shinjuku. It comes with Sky Lounge on the top floor, concierge service, and various shared facilities such as meeting room, music room, fitness gym, laundromat, and public bath with a spacious changing area and a sauna room (some are pay facilities). Double security system by vein authentication. Having a pet animal and playing musical instruments are allowed (need to follow the detailed rules).

JPY 179,800,000

Exterior of Cross Air Tower
Sale Property tag

This super-high-rise tower apartment with 42 floors above ground and a total of 689 units was built in January 2013 in the large-scale redevelopment area of Ohashi, Meguro-ku, which is a landmark tower in Ikejiri-Ohashi area. The view lounge on the 39th floor offers panoramic views of Central Tokyo. There is a supermarket on the 2nd floor, a party room on the 6th floor, a municipal library and a municipal community center on the 9th floor, and the air gardens on the 3rd and 9th floor are directly connected to the aerial park on the rooftop of Ohashi Junction. Luxurious shared facilities and services include a grand lobby with over 7m high open ceiling space, hotel-like shared spaces, a fitness gym, a guest room, a party room, and concierge services. The neighboring area is dotted with commercial facilities and rich nature such as along Meguro River and in Saigoyama Park, so you can enjoy a nice and rich urban life.

JPY 218,000,000 - 238,000,000

Exterior of Park Court Aoyama The Tower
Sale Property tag

Located in Minami-Aoyama 2-chome, Minato-ku, Tokyo, Park Court Aoyama the Tower, formerly sold by Mitsui Fudosan Residential and Iconique Special Purpose Company and constructed by Obayashi Corporation, was completed in March 2018. It is a large-scale tower condominium with a total of 163 units and 26 floors above ground and one basement floor. The stylish and modern form with graceful curves is eye-catching. Park Court Aoyama the Tower offers a wide range of common facilities and amenities, including an infinity pool, jet bath, fitness gym, sky lounge, club lounge, guest rooms, etc. A private garden surrounded by greenery on the second floor and a concierge who will support your comfortable living and provide attentive services. The 24-hour manned management system and auto-lock system at the entrance linked to the intercom with TV monitor support the security of your residence. The nearest station to Park Court Aoyama The Tower is Aoyama-itchome Station on the Tokyo Metro Ginza Line. It is a 3-minute walk from the station to the apartment. Aoyama-itchome Station on the Tokyo Metro Hanzomon Line and Toei Oedo Line is also a 3-minute walk away, and Nogizaka Station on the Tokyo Metro Chiyoda Line is a 7-minute walk away, providing convenient access to transportation. In preparation for disasters The latest technology employed for maximum safety of the building. Emergency generators placed available for 72hours Stockpile warehouse place on all the floors for storage of disaster stockpile.

JPY 598,000,000

Exterior of MITA GARDEN HILLS NORTH HILL
Sale Property tag
Brandnew

JPY 858,000,000 - 878,000,000

Exterior of Stage First AOYAMA
Sale Property tag

Stage First Aoyama was constructed in April 2000 by Nishimatsu Construction and developed by Meiwa Juhan, and is built to new earthquake resistance standards. It is a 5-minute walk from Gaienmae Station on the Tokyo Metro Ginza Line and a 7-minute walk from Omotesando Station on the Ginza, Chiyoda and Hanzomon Lines. The popular Aoyama/Omotesando/Harajuku area is within the sphere of daily life, being close to the Jingu-Gaien and Kita-Aoyama 3-chome areas, which are expected to be redeveloped in the future. The building is a reinforced concrete structure with seven floors above ground and a total of 28 units. The units consist of 1K-type layouts, with compact-sized units ranging in size from 18.38 m2 to 36.15 m2.

JPY 69,800,000

Exterior of Proud Futako-tamagawa
Sale Property tag

JPY 184,800,000 - 199,900,000