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What is the Japan Mortgage Deduction ? (2023)

You can use the Japan mortgage deduction for up to 13 years

Requirements for Using the Japan Mortgage Deduction

Types of housing and when you move in

Concrete example of Housing Loan Deduction of Japan

In the case of a new home and you moved in between January 1, 2024 and December 31, 2025

Mortgage Deduction and Residential Taxes of Japan

In the case of a used residence and you move in between January 1, 2022 and December 31, 2025.

To use the mortgage deduction, you need to file a tax return in the beginning

Documents required to file for the Japan mortgage deduction

What is the Japan Mortgage Deduction ? (2023)

You have decided to buy a Residence in Japan by borrowing money from a bank. In that case, depending on various circumstances, you may be able to use a tax credit called a Japan mortgage deduction (Housing loan deduction=Jutaku Loan Deduction=住宅ローン控除).
In other words, you can reduce the amount of income tax and inhabitant tax you pay.

The law on this mortgage deduction system changes frequently. Therefore, I will explain the mortgage deduction (住宅ローン控除）based on the latest information as of February 2023.

You can use the Japan mortgage deduction for up to 13 years

Suppose you borrow money from a bank (say 10,000,000 yen) to buy a residence for 12,000,000 yen on October 10, 2023 and move into the residence during 2023.

In this case, 0.7% of the loan balance at the end of 2023 (e.g. 9,500,000 yen) may be deducted from your income and inhabitant taxes for up to 13 years.
(9,500,000 yen * 0.7% = 66500 yen)

So, your income tax for 2023 (your income tax is withheld from your salary) will be refunded and your inhabitant tax for 2024 will be reduced.

If your mortgage balance at the end of 2024 is 8,500,000 yen, your taxes may be reduced by about 59,500 yen (income tax and residence tax combined).
Meaning 8.5 million yen * 0.7% = 59500 yen.

You pay off your mortgage every year, and your mortgage balance decreases every year.

Yet, your mortgage balance would still be more than 50,000,000 yen. Because price of real estate in Japan is not so cheap. So, the benefit of this mortgage deduction is huge.

By law, you can use the mortgage deduction for up to 13 years. But you can actually use the mortgage deduction for 13 years only in limited cases.

Also, you won’t get a refund for more than the income and inhabitant taxes you paid. If you paid only 1 yen of income taxes in 2023, then even if your mortgage balance was 50,000,000 yen, you would only get 1 yen refunded to you.

Requirements for Using the Japan Mortgage Deduction 

1) The term of the mortgage must be at least 10 years. So, for example, even if your income is good and you think you can pay off your mortgage in 5 years, the repayment term should be 10 years or longer.

2) You must move in the property within 6 months of buying it. And it should be by the end of 2025. This is because the mortgage deduction will be eliminated after 2025.

3) The floor area of the property you are buying (the room area on the registry, not the area on the flyer of the property) is at least 50 square meters.

If you also use the property as your place of business, at least 50 percent of the floor area should be used by you as your residence.

When the property is a new house (built before the end of 2023), even if the floor area is more than 40 square meters and less than 50 square meters, but your taxable income is less than 10,000,000, you can use housing loan deduction.

However, Perhaps you are not buying a new house. So, you only need to remember that the floor area must be 50 square meters or more.

4) If you use the mortgage deduction in 2023, your taxable income in 2023 must be less than 20,000,000 yen (your salary income minus payroll deductions, etc.). If your income is too high, you cannot use the mortgage deduction.

Suppose you purchase a residence in 2023 and want to use your mortgage deduction.
In this case, you are not be able to use this mortgage deduction if you used the special exception for taxation of long-term transfer income for transfers of residential property in 2021 or 2022 or 2023.

By the way, the mortgage deduction is not only available when you buy a residence, but also when you use a mortgage for remodeling or expansion of your residence.

Types of housing and when you move in   

The amount of mortgage deduction you can use depends on the type of house and the time of your move.

First, let’s look at the case of a newly built a residence （a detahced house or an apartment）and you move in before the end of 2023.

Long-term quality housing (長期優良住宅)

Maximum mortgage balance      50,000,000 yen

Deduction rate     0.7%

Deduction available for 13 years

Maximum mortgage deduction (per year)        350,000 yen

There are other detailed classifications depending on the performance of the house, but I omit them here.

（Long-term quality housing is high-performance housing that meets certain standards for energy-saving performance, barrier-free performance, and earthquake resistance.）

Ordinary new house

Maximum mortgage balance        30,000,000 yen

Deduction rate         0.7%

Duration of mortgage deduction  13 years

Maximum annual mortgage deduction of 210,000 yen (Because 30,000,000 yen * 0.7%)

Concrete example of Housing Loan Deduction of Japan  

You bought a newly-built house (Long-term quality housing) in October 2023 by borrowing 40,000,000 yen from a bank.

The mortgage loan repayment term is 10 years and the registered floor area is 50 square meters (you know this by checking the registration information).

The mortgage balance at the end of 2023 is 39,000,000 yen.

According to the law, the maximum mortgage balance available is 30,000,000 yen, so the formula is as follows

30,000,000 yen x 0.7% = 210,000 yen

If you paid income tax of more than 210,000,000 yen from your salary in 2023, then the mortgage deduction will refund you ¥210,000.

And you can use the mortgage deduction for 13 years. (As long as there is a mortgage balance and you are living there and paying income tax.)

For example, suppose your mortgage balance at the end of 2024 is 35,000,000 yen.

The maximum mortgage balance available is 30,000,000 yen, so the formula is as follows

30,000,000 yen x 0.7% = 210,000 yen

If you were paying income tax of more than 210,000 yen out of your salary in 2024, then the mortgage deduction would refund you 210,000 yen.
　

For example, suppose your mortgage balance at the end of 2033 is 25,000,000 yen. In this case, the formula is as follows.

25,000,000 yen x 0.7% = 175,000 yen

If you paid income tax of more than 175,000 yen from your salary in 2033, you can get 175,000 yen back by using the mortgage deduction.

In the case of a new home and you moved in between January 1, 2024 and December 31, 2025  

The government is about to abolish this mortgage deduction, so the mortgage deduction amount will be reduced.

Long-term quality housing:

Maximum mortgage balance available       45,000,000 yen

Deduction rate         0.7%

Mortgage deduction available for 13 years

Maximum mortgage deduction (per year)      315,000 yen

Ordinary new house

Maximum mortgage balance available      20,000,000 yen

Deduction rate        0.7%

Duration of mortgage deduction available       10 years

Maximum mortgage deduction (per year)       140,000 yen (Because 20,000,000 yen * 0.7%)

The above explanation is based on the case where you purchased a newly-built house. If you purchased an existing house, used house, you can still use the mortgage deduction under certain conditions.

Mortgage Deduction and Residential Taxes of Japan 

As I explained above, your mortgage deduction can give you back a portion of your income tax.

For example, you bought a newly built house (not a long life quality house) in October 2023 by borrowing 40,000,000 yen from a bank.
The mortgage repayment term is 10 years and the registered floor area is 50 square meters.

In this case, the maximum mortgage deduction is as follows

30,000,000 yen x 0.7% = 210,000 yen

But suppose you paid only 50,000 yen in income tax in 2023. In this case, the remaining 160,000 yen would be deducted from the inhabitant tax.

But there is an upper limit to the amount that can be deducted from the inhabitant tax.

The maximum amount that can be deducted from the inhabitant tax is “5% of taxable income” or “97,500 yen”.

In other words, only a maximum of “97,500 yen” can be deducted from your inhabitant tax.

In the case of a used residence and you move in between January 1, 2022 and December 31, 2025

Long-life quality housing

Maximum mortgage balance available 30,000,000 yen

Deduction rate         0.7%

Duration of mortgage deduction available        10 years

Maximum mortgage deduction (per year)         210,000 yen

Ordinary used house 

Maximum available mortgage balance             20,000,000 yen

Deduction rate 0.7%

Duration of mortgage deduction available        10 years

Maximum mortgage deduction (per year)         140,000 yen

Requirements for used housing

The used building you buy must have been built on January 1, 1982 or later. Because buildings built before December 31, 1981 are subject to the old Building Standard Law.

If the building was constructed earlier than January 1, 1982, the mortgage deduction can be used if there is a certificate of compliance with the earthquake resistance standards.

Let’s say you and your spouse jointly buy a house (with 1/2 equity each). In this case, a floor area of 50 square meters or more is sufficient .　It doesn’t have to be more than 100 square meters.

To use the Japan mortgage deduction, you need to file a tax return in the beginning 

Let’s say you bought a house in 2023 and moved in by the end of 2023.

Then you need to file your tax return in March 2024. Then you will be eligible for the mortgage deduction for your 2023 income tax.

Even if you are a company employee, you need to file your own tax return.
(Even if you are a self employee, you can use this Housing Loan Dedution, of course)

However, as for your second year (income in 2024), you do not have to file a tax return. You do not need to submit tax filing in March 2025.

You will receive a “Certificate of Special Deduction for Housing Loan for Year-end Adjustment” from the tax office. Then, you will receive a “Year-end Balance Certificate of Loan for Housing Acquisition Fund” from your bank. 

You submit them to your employer. Then, your employer will settle your taxes through the year-end adjustment.

Documents required to file for the Japan mortgage deduction 

Assume you purchase a residence in 2023 and move into it in 2023. At that time, the documents you need to submit to the tax office in March 2024 are as follows.

1  Statement of calculation of the special deduction for housing loans (住宅借入金等特別控除額の計算明細書) and tax filing paper

2  The “Certificate of Balance of Loan as of the End of the Year”          You will get from your bank

3  A copy of the real estate registration certificate issued by the Legal Affairs Bureau

4  A copy of the purchase agreement

5 If the building was constructed before December 31, 1981, “Certificate that the building meets earthquake resistance standards,” etc. issued by an architect, etc.

If you need any assist in law and tax of Japan, you can ask me anything. 

akiyama(a)japan-law-tax.com  Tomohiko AKIYAMA