An example of a real estate investment in Japan
Before you purchase real estate in Japan, you need to know about depreciation cost.
Here, I want to explain about it by taking up an example.
Information about a property.
Apartment in Omori, Otaku, Tokyo, 5 million yen, net yield 8.2 %
Published in March 16th, 2015.
Room number : 401
Room area : 18,89㎡
Recently, this room is completely renovated.
20 minutes walk from Omori and Kamata station.
Number of passengers of getting on and off this station is 450,000 per a day.
Nearest bus stop : 4 minutes walk.
Prospective monthly rental fee : 55,000 yen
In this building, other room is looking for renter with rental fee of 58,000 yen.
So, 55,000 yen is conservative rental fee.
Apartment Management Fee : 6,810 yen
Reserve fund for repair = 10,600 yen
6,810 yen + 10,600 yen = 17,410 yen
55,000 yen ( Monthly rental fee ) － 17,410 yen =
37,590 yen ← You can receive this amount every month.
Estimate acquisition cost : 500,000 yen
( Including acquisition tax, fee for realtor, fee for Judicial scrivener, registration tax, stamp duty )
37,590 yen × 12 months ÷ ( 5 million + 500,000 yen ) = 0.082
So, net yield is 8.2 %.
Surely, this is not close to station, there is not renter yet.
But, price of this apartment is reasonable.
Please remember that when there is renter in room already, the sales price will be around 5,500,000 yen.
Built in March 1984
Annual property tax amount : 22,972 yen
The amount of already accumulated reserve fund for repair is 11,307,971 yen
Exterior wall coating construction was conducted in 2009.
waterproofing work on the roof was conducted in 2011.
4 minutes walk to supermarket.
When a company opens a new supermarket, they conduct investigation if the area has enough prospective customers.
So, when there is supermarket in neighborhood, it is one of proof that there are enough potential guests and renters.
Annual depreciation cost ( Genka shokyaku hi = 減価償却費 ).
When you purchase real estate and rent out, you cannot deduct purchase amount as expense ( Keihi ) at once.
Let’s say you purchase apartment of 100 yen and rent out.
And you receive rental fee of 10 yen per a year.
In this case, you can not sum up 100 yen as expense during 1 year.
You need to sum up a apart of purchase amount as expense.
And calculation of this part means depreciation.
In order to calculate depreciation cost, you need to break down purchase amount into building and lot.
Because, you can not depreciate lot. Valuation will not decrease even if you utilize it for long years.
In case of this apartment, purchase amount of building is assumed to 1,800,000 yen.
Assumed you purchase this apartment in August, 2014.
Durable years ( useful years = Taiyo nensu = 耐用年数 ) of Reinforced concrete building ( For residence ) : 47 years.
This apartment was built in March 1984 and you purchase it in August, 2014.
So, age of this building is 30 years and 5 months.
And in the calculation of depreciation cost, it is 31 years.
Because it is beneficial for taxpayers.
When age of property is older, it will shorten remainder of durable years and it will increase depreciation rate and it will increase deductible expense.
In case of used real estate, remainder of durable years extends by 20 %.
So, remainder of durable years of this apartment is
47 years – 31 years + 31 years × 0.2 = 16+ 6.2 = 22.2 years.
And in calculation of depreciation cost, it is 22 years.
Because, it is beneficial for taxpayers.
The remainder of durable years is shorter it will increase depreciation rate and it will increase deductible expense.
Depreciation rate when remainder of durable year of specific real estate is 22 years, Reinforced concrete : 0.046.
1,800,000 yen × 0.046 = 82,800 yen.
So, annual income tax will be as below.
Rental fee : 55,000 yen × 12 months = 660,000 yen
Apartment Management Fee : 6,810 yen × 12 months = 81,720 yen
Reserved fund for repair ：10,600 yen × 12 months = 127,200 yen
Annual property tax : 22,972 yen
Depreciation cost : 82,800 yen
660,000 yen – 81,720 yen – 127,200 yen – 22,972 yen – 82,800 yen =
345,308 yen = Real estate income.
When I make double entry bookkeeping and file tax return ( Aoiro shinkoku ) on behalf of you, you can apply income deduction of 100,000 yen.
345,308 yen – 100,000 yen = 245,308 yen.
245,308 yen – 380,000 yen ( Basic deduction = Kiso kojo. Non resident of Japan can apply basic deduction. ) is below zero.
So, you do not need to pay income tax.
On the other hand, assumed that you are salaried employee in Japan and under following condition.
1 The amount of your annual salary in 2014 is 4 million
yen ( Amount of withheld tax ( Gensen choshu zei gaku = 源泉徴収税額 ) is 72,000 yen )
2 The amount of employment income deduction : 1,340,000 yen
( 4 million yen × 20 % + 540,000 yen )
So, salaried income is 4 million yen – 1,340,000 yen = 2,660,000 yen
3 The amount of your your annual life insurance premium is 40,000 yen
4 The amount of your social insurance premium ( Shakai hoken ryo, for example national heal insurance tax = kokumin kenko hoken ryo = 国民健康保険, national pension plan premium = Kokumin nenkin = 国民年金 ) in
2014 is 280,000 yen
5 Deduction for dependent ( Fuyo kojo = 扶養控除。If taxpayer has child his or her age is 16 or over 16 as of 31th in December, taxpayer can apply Deduction for dependent. When child of taxpayer is over age of 16, she will go to school and it will cost a lot of money. So, Japanese government try to support taxpayer. ) : 380,000 yen
( As for deduction for dependent, please refer to ” Change in law relating to deduction for spouse and dependent in 2015. ” )
6 Basic deduction ( Kiso kojo ) : 380,000 yen
7 Real estate income : 345,308 yen
Total amount of deduction : 280,000 yen + 40,000 yeny + 380,000 yen + 380,000 yen = 1,080,000yen
2,660,000 yen ( salaried income ) + 345,308 yen ( Real estate income ) – 1,080,000yen ( deduction ) = 1,9 25,308 yen
1,9 25,308 yen × ５ % ( Rate of income tax. As below )= 96,265 yen
96,265 yen – 72,000 yen ( withholding tax amount ) = 24,265 yen
So, you need to pay income tax of 24,265 yen.
|The amount of employment income||Amount of Employment income deduction ( Kyuyo shotoku kojo = 給与所得控除 )|
|Less than 1,800,000 yen||The amount of salary × 40 % ( At least 650,000 yen )|
|More than 1,800,000 yen, Less than 3,600,000 yen||The amount of salary × 30 % + 180,000 yen|
|More than 3,600,000 yen, Less than 6,600,000 yen||The amount of salary × 20 % + 540,000 yen|
|More than 6,600,000 yen, Less than 10,000,000 yen||The amount of salary × 10 % + 1,200,000 yen|
|More than 10,000,000 yen, Less than 15,000,000 yen||The amount of salary × 5 % + 1,700,000 yen|
|More than 15,000,000 yen||24,500,000 yen|
Tax rate of income is different from the amount of your income in Japan.
If you do not live in Japan, you do not have to pay resident tax in Japan.
Table of Income Tax Rate in Japan
|amount of taxable income||income tax rate||amount of deduction|
|～ 1,950,000 yen||5%||0 yen|
|1,950,000 yen ～ 3,300,000 yen||10%||97,500 yen|
|3,300,000 yen ～ 6,950,000 yen||20%||427,500 yen|
|6,950,000 yen ～ 9,000,000 yen||23%||636,000 yen|
|9,000,000 yen ～ 18,000,000 yen||33%||1,536,000 yen|
|18,000,000 yen ～||40%||2,796,000 yen|
During year of 2013 to 2037, Special Reconstruction Income Tax ( Fukko tokubetsu shotoku zei = 復興特別所得税 )is also levied.
Rate of Special Reconstruction Income Tax is 2.1 %.
Example of calculation.
taxable income : 2,000,000 yen.
2,000,000 yen × 10 % – 97,500 yen = 102,500 yen ← Income tax.
102,500 yen × 2.1 % = 2,152 yen ← Special Reconstruction Income Tax
Incometax + Special Reconstruction Income Tax = 102,500 yen + 2,152 yen =