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Real estate investment and tax saving in Japan


System of Income Tax in Japan

System of Resident tax of Japan

Depreciation cost of real estate

Overseas Real Estate Investment and Tax Saving

Some persons who receive excellent salary sometimes purchase old wooden house for their investment.

Because, depending on situation, they can reduce amount of tax in Japan.

Assumed that your salaried income in Japan is 15 million yen per a year.

As for Income tax (shotoku zei) in Japan

In the case of 15 million yen, employment income deduction (きゅうよしょとくこうじょ) is about 2.2 million yen.

And income deduction (しょとくこうじょ) is about 1.93 million yen.

(Breakdown basic deduction : 480000 yen. Social insurance deduction is 1.45 million yen)

15 million yen – 2.2 million yen – 1.93 million million yen = 10.87 million yen.

10.87 million yen is taxable income of income tax.(かぜいしょとく)

10.87 million yen × 33% (income tax rate) – 1.53 million yen (deduction) = about 2.05 million yen.

2.05 million yen is the amount of income tax.

Regarding resident tax (Juminzei)

In the case of 15 million yen, employment income deduction (きゅうよしょとくこうじょ) is about 2.2 million yen.

And income deduction (しょとくこうじょ) is about 1.88 million yen.

(Breakdonw basic deduction : 330,000 yen. Social insurance deduction is 1.55 million yen)

15 million yen – 2.2 million yen – 1.88 million yen = 10.92 million yen.

10.92 million yen is taxable income of Resident tax.(かぜいしょとく)

10.92 million yen × 10% (resident tax rate) = about 1.09 million yen.

1.9 million yen + 7000 = 1.1 million yen.

This 1.1 million yen is amount of resident tax.

Depreciation cost of house can offset your taxable income

On the other hand, in the case you purchase an old wooden house and renting out, you can apply for depreciation cost.

Depending on appraised value of real estate, you may be able to reduce your taxable income by 1 million yen.

Then, when you sell the real estate after 5 years from your purchase, you need to pay income tax on real estate transfer.

However, in the case income tax, caused by sale of real estate, total rate of income tax and resident tax is 20%.

Total rate of income tax and resident tax is 20%.

Total rate mentioned above is about 40%.

So, you may be able to receive some tax merit.

Overseas Real Estate Investment and Tax Saving

In the case you (resident of Japan) purchased a overseas real estate for investment purpose, you could save amount of income tax.
(Merit of Depreciation Cost)

Assumed that you purchased a used real estate in America and it produced loss, you could offset the loss against income in Japan.

In the case of real estate in America, proportion for building is high.

If you purchase a wooden detached house in Japan with 100 yen, price for building will be 10 yen and price for land will be 90 yen.

If you purchase a wooden detached house in America with 100 yen, price for building will be 80 yen and price for land is 20 yen.

So when you purchased a detached wooden house in America, you can allocate a lot of depreciation cost for the house.
(You can depreciate only for building price. Not land price)

Depreciation cost can be included in deductible expense. So you could show loss and offset it against income in Japan.

Then, you could reduce your income tax in Japan.

However as of now, you (Individual) can not use this scheme.

In the case your real estate investment in USA shows loss according to depreciation cost, it is deemed that there is not loss.

Assumed that you purchased a real estate in America and price for building was 80 yen.

If age of building is 23, you could depreciate it for 4 years. So you could allocate 20 yen per year.
(80/4 years = 20 yen)

If your taxable income in Japan was 100 yen, you could reduce 20 yen it by using depreciation cost.

So your taxable income could be 80 yen.

However as of now (2021), you can not use this method.

So amount of your taxable income in Japan is still 100 yen.

On the other hand, when you sale this real estate in America, book value for the building is still 100 yen.

So it will decrease amount of capital gain.

Moreover if your company in Japan purchases a real estate in America, your company can still appropriate depreciation cost emerged from overseas real estate.

So it can enjoy some merit.