You can save tax amount by purchasing an old real estate in or outside of Japan
For your information
Overseas Real Estate Investment and Tax Saving
Here, I want to explain about scheme for tax avoidance. ( Setsuzei ) by means of old property in Japan.
Japan’s Taxation system is progressive taxation. ( Ruishin kazei seido = 累進課税制度 ).
Rate of income tax and Special Reconstruction Income Tax in Japan
|Amount of taxable income||rate||deduction|
|1,000 yen to 1,949,000yen||5.105％||0円|
|1,950,000 yen to|
|3,300,000 yen to|
|6,950,000 yen to|
|9,000,000 yen to|
to 39,999,000 yen
|40,000,000 yen ormore||45.945％||4,796,000 yen|
( Example of calculation of tax amount
Assumed that the amount of taxable income is 6,949,000 yen.
6,949,000 yen × 20 % – 427,500 yen = 962,300 yen ( Income tax )
962,300 yen × 2.1 % = 20,208 yen ( special income tax )
962,300 yen + 20,208 yen = 982,508 yen.
So, owner has to pay 982.500 yen to tax agency. )
So, if you have some amount of earnings in Japan, you need to consider about tax avoidance.
Offset of real estate loss and salaried income
In this page, I will explain about offset (Sosai) of profit and loss ( 損益通算 = Son eki tsu san ).
By using aggregation of profit and loss method, you can reduce amount of your income tax, even if you are salaried employee or real estate lease business person.
There are 3 reasons why you can reduce tax amount by purchasing old real estate in Japan.
1) Real estate loss can be offset with other kind of income.
2) In the case of old wooden property, you can depreciate within 4 years.
3) You can sum up several kinds of expenses related to real estate lease business.
As for 1).
Assumed that you have salaried income of 100 yen in Japan and if you have a loss ( Akaji ) of 50 yen in property lease business, you can reduce taxable income to 50 yen. 100 yen – 50 yen = 50 yen.
If you receive rental fee of 100 yen from renter, but amount of depreciation cost of real estate is 150 yen, your real estate renting out business is in the red of 50 yen.
If you have real estate income of 100 yen from property A, and if you have loss ( Akaji ) of 50 yen in property B, you can reduce taxable income by 50 yen.
( In this page, real estate income means income brought from real estate renting out business. You can not offset capital loss of real estate with other kind of income. However, there are exceptions.)
As for 2).
Statutory durable years of Residential property ( Real estate for someone’s residence.) is as below.
Reinforced concrete building : 47 years.
Wooden house : 22 years.
And when a property has already elapsed all its statutory durable years, durable years of this property shall be 20 % of its statutory durable years.
So, if property あ is wooden house and you have bought it after it has already elapsed its statutory durable years,( i.e. You have bought property which was built over 22 years ago. ), its durable years is 4 years.
22 years × 20% = 4 years.
Depreciation rate ( Genka shokyaku ritsu ) of durable years of 4 years is 0.25.
It means that if you have bought property あ at 4,000,000 yen, you can depreciate 1,000,000 yen every year.
4,000,000 yen × 0.25 = 1,000,000 yen.
So, you can reduce your taxable income by 1,000,000 yen ever year for 4 years.
( If you get real estate income of 400,000 yen from this property, you can only reduce your taxable income by 600,000 yen.
1,000,000 yen – 400,000 yen = 600,000 yen.)
If you buy house and lot, the bigger proportion of house, the higher amount of depreciation cost.
Explanation with examples
Assumed you buy over 22 years old wooden house and its site at 4,000,000 yen.
Break down : House 3,000,000 yen. Lot 1,000,000 yen.
Depreciation cost : 3,000,000 yen × 0.25 = 750,000 yen.
Break down : House 1,000,000 yen. Lot 3,000,000 yen.
Depreciation cost : 1,000,000 yen × 0.25 = 250,000 yen.
So, in the case 1), you can reduce more money than case 2).
It is better for buyer that proportion of house is bigger.
On the other hand, if the seller is company, you need to pay consumption tax.
Consumption tax is levied on house.
So, if the proportion of house is bigger, the amount of consumption tax is bigger.
( Tax rate of consumption tax is 10 % as of 2020. )
In general, you need to classify purchase amount into house and lot according to amount of assessed value of property (Hyoka gaku).
Assumed that assessed value of house is 1,000,000 yen.
Assessed value of lot is 3,000,000 yen.
I do not recommend you that you classify as below even if you want to sum up more amount of depreciation cost.
Purchase price of house is 3,000,000 yen.
Purchase price of lot is 1,000,000 yen.
Real estate for vacation
By the way, if the property is for villa, you can not apply aggregation of loss and profit.
Because, your real estate is not for business purpose.
Assumed that you purchase property for villa and rent it out. It yields deficit of 100 yen per a year.
Your employment income ( 給与所得 ) is 200 yen.
In this case, you can not deduct 100 yen from 200 yen.
As for 3).
You can deduct several kinds of costs related to real estate lease business from your earnings.
Assumed that annual rental fee : 100 yen.
Annual property tax : 10 yen.
Annual Depreciation cost : 10 yen.
Registration tax : 20 yen.
Acquisition tax : 20 yen.
Real estate income : 100 yen – 10 yen – 10 yen – 20 yen – 20 yen = 40 yen.
If you hire me to file registering of ownership transfer, I can support you in wide area.
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