You are currently viewing Real Estate Investment and Japanese Journalization Methods

Real Estate Investment and Japanese Journalization Methods

Menu

Suppose you bought land and buildings in Japan for investment purposes.

In the case you do not know the breakdown of land and building in the sales price

When the amount of consumption tax is not stated in the sales contract

Settlement money for property tax

Expenses other than the above are not included in the acquisition cost

Real Estate Investment and Japanese Journalization Methods

Suppose you bought land and buildings in Japan for investment purposes.

In this case, the land and building are recorded as tangible fixed assets(固定資産).

Example of journal entries(仕訳=しわけ) 

Debit Account(借方)/  Credit Account(貸方)
Land  10 yen  /  Cash(現金)  10 yen

Building  5 yen  /  Cash  5 yen

(The numbers are small for ease of understanding. And this amount is tentative one.)

Instead of losing 10 yen in cash, you have acquired land worth 10 yen.

In the journal entry, the increase and acquisition of the asset(資産) are recorded on the debit side.

In the journal entry, the decrease or loss of the asset is recorded on the debit side.

Land is recorded on the balance sheet at the price at which it was first acquired (¥10) until it is sold.

This means that the price of land does not decrease even if it gets old.

However, the building depreciates(減価償却) and gradually decreases from the acquisition price (¥5).

(You can refer to “How to calculate depreciation cost” Calculation formula of depreciation cost of real estate )

real estate investment in Japan and Journalization Shiwake Image

In the case you do not know the breakdown of land and building in the sales price  

When you buy real estate, the sales contract may not clarify  the respective prices of the land and the building (10 yen or 5 yen).

It is a case where only 15 yen is written in the sales contract as the transaction price.

In that case, you would calculate the price of the building based on the amount of the consumption tax(消費税).

This is because the consumption tax is only imposed on the building.

You can calculate the price of the building using the following method (if the consumption tax rate is 10%)

Consumption tax amount ÷ 10 × 110 = price of the building (tax included)

Suppose that the sales contract states 20 yen as the amount of consumption tax and total sales price is 520 yen.

In that case, 20 yen ÷ 10 × 110 = 220 yen.

So the price of the building is 220 yen.

If the total price of land and building written on the sales contract is 520 yen, the price of land is 300 yen.

The land price is obtained by subtracting the building price from the sales price.

Sales price (520 yen) – building price(220 yen) = land price(300 yen)

real estate investment in Japan and Journalization Image

When the amount of consumption tax is not stated in the sales contract 

In this case, you can calculate the building price based on the assessed value of the fixed assets(固定資産評価額).

Sales price ÷ (total assessed value of land and building) × assessed value of building = building price

Suppose the total sales price of the land and the building written in the sales contract is 200 yen.

Suppose that the assessed value of the fixed assets of the land is 80 yen and the assessed value of the building is 20 yen.

In this case, 200 yen ÷ (80 + 20) × 20 = 40.

So, the price of the building is 40 yen.

The government office calculates the amount of property tax based on the assessed value of the property and charges it to you every year.

When you buy a property, you should also get a certificate of valuation of fixed assets from the real estate agency.

Expenses to be included in the acquisition price other than the sales price

When you buy real estate, you pay money for various reasons other than the price of land and building.

That amount can also be added to the price of land and building (10 yen or 5 yen). A part of the cost required to acquire land and a building can be prorated to the amount of land and a building and added to the sales price of land and a building (10 yen or 5 yen).

I know my sentences is not easy to understand. But please be patient.

You pay a commission to the real estate brokerage firm.

It will be prorated to the amount of land and building.

If the sales price is 15 yen (land: 10 yen, building: 5 yen) and the commission to the agency company is 3 yen, it is calculated as follows.

3 x 5 / (10 + 5) = 1 yen.

In other words, 1 yen is the fee for the realtor to purchase the building.

Therefore, this 1 yen is added to 5 yen. So you can depreciate 6 yen gradually. And you can add 2 yen to the price of land.

Debit Account(借方)/  Credit Account(貸方)
Land  12 yen  /  Cash(現金)  12 yen
Building  6 yen  /  Cash  6 yen

(this is still tentative one)

real estate investment in Japan and Journalization Broker Image

Settlement money for property tax  

When you buy real estate you pay the seller a settlement amount for property tax.

Suppose the property tax on the real estate you buy (building only) is 365 yen.

You buy real estate on May 1.

You signed the purchase agreement on April 15 and paid the seller 10% of the purchase price. And you paid balance money to seller on May 1st.

In this case, you pay the seller ¥235. Because the seller will receive and pay a property tax bill of ¥365 from the government office.

From May 1, you are the owner. So it is fair that you are responsible for the property tax from May 1.

Therefore, you pay ¥235 to the seller.

This 235 yen is also added to the acquisition price of the building. In other words, you will depreciate it.

Since you cannot deduct it all at once, you will gradually deduct it each year.

Debit Account(借方)/  Credit Account(貸方)
Land  12 yen  /  Cash(現金)  12 yen
Building  241 yen  /  Cash  241 yen

real estate investment in Japan and Journalization Depreciation Image

Expenses other than the above are not included in the acquisition cost.  

In other words, they can be deducted at once in the year of purchase. This will reduce your taxable income.

“expenses other than the above” means following expenses.

Registration fees

You pay fees to a judicial scrivener (I am a judicial scrivener 司法書士).

(I hope you will hire me when you buy or sell your property.)

The registration fee includes several items.

ex.
Remuneration to judicial scrivener   10 yen

Registration tax    11 yen
Certificate of registered matters   12 yen
Mailing cost of documents    13 yen

Debits  / Credits
Commission fee(支払い手数料) 10 yen / cash 10 yen
Taxes and public dues 11 yen(租税公課)  /  cash 11 yen
Taxes and public dues 12 yen(租税公課)  /  cash 12 yen
Communication expense 13 yen(通信費)  /  cash 13 yen

The occurrence of expenses is recorded on the debit side and the decrease in assets is recorded on the credit side.

Real Estate Acquisition Tax(不動産取得税)

A few months after you buy a property, you receive a bill for real estate acquisition tax from the government office.

Debit / Credit

Taxes and public dues 14 yen / Cash 14 yen

About Stamp Tax

You affix revenue stamps to the sales contract. By doing so, you pay the stamp tax.

Debits / Credits

Tax and dues 10 yen / Cash 10 yen

stamp tax Japan2

Management fee and repair reserve fund for condominiums

When you buy or own a condominium, you pay the management fee and the reserve fund for repairs(管理費・修繕積立金) (3 yen) from your bank account.

These 3 yen can be recorded as deductible expenses.

Debits / Credits

Management fee, etc.: 3 yen / Savings account(普通預金) 3 yen

About the settlement of security deposit

The seller of real estate received a security deposit (敷金) of 10 yen from the lessee.
In other words, the seller owes the renter a security deposit (10 yen).

In this case, the seller returns 10 yen to the renter when he sells the real estate. And the renter must deposit 10 yen to you.

But in order to omit this procedure, you take over the 10-yen debt from the seller.

In that case The journal entries are

Debits / Credits

Cash 10 yen / Security deposit 10 yen

The receipt of the security deposit increases the asset, so it is recorded in the debit.

The liability of the security deposit has increased. So, it is recorded in the credit line.

Settlement of Rent

Assumed that you buy real estate on May 1. The property is occupied by a tenant.

But the tenant has already paid the seller the rent (31 yen ) for the period of May 1-31.
(The rent is advance payment).

So you ask the seller to refund the 31 yen and receive it.

In this case The journal entries are  

Debits / Credits

31 yen in cash / 31 yen in sales(住宅家賃) (house rent)

The increase in assets is recorded in the debit.

Sales are recorded in the credit.

Note that the consumption tax is not levied on rent in the case of residence.

In the case of office building, consumption tax is levied on received rent.

So you should set up an auxiliary account named (Residential rents 住宅家賃).

If you see sample of balance sheet, it is easier to understand journalization.

If you found the above information useful, you may hire me as your judicial scrivener when you buy or sell real estate.

real estate investment in Japan and Journalization BL