When you sell real estate, the tax on the income from the sale of land or buildings is calculated separately from other income. The tax rate to be applied depends on whether the period of ownership of the sold land or building exceeds five years as of 1 January of the year of sale.
The amount of taxable transfer income is calculated according to the following formula.
Even if there is a loss as a result of the following formula, it is not possible to deduct the loss from income other than income from the transfer of land and buildings. However, if you sell your own home, there is a special provision that allows you to deduct the loss.
Transfer value – (acquisition cost (A) + transfer cost) – special exemption (where applicable) = taxable transfer income
Acquisition costs (A) are the total purchase price of the land or building sold (for buildings, an amount equivalent to depreciation is deducted).
If the actual amount of acquisition costs is less than 5% of the transfer price, you can calculate the amount equivalent to 5% of the transfer price as acquisition costs.
Transfer expenses (B) include: 1. broker’s commission, 2. costs directly incurred in selling the land or building, such as surveying costs, 3. eviction fees paid on the sale of a rental house, and 4. demolition costs when the building is demolished and the land is sold.
A special exemption of up to 50 million yen is available if the sale is due to expropriation or other reasons, and up to 30 million yen is available if you sell your own house and land.
Next, the amount of taxable transfer income is multiplied by the tax rate to calculate the tax amount.
If the period of ownership of the land or the building exceeds five years as of January 1 of the year when the land or the building is sold, the subtotal of the income tax and the special income tax for recovery becomes a tax rate of 15.315%, and the inhabitant tax becomes 5%. If you have owned the land or building for less than five years as of 1 January of the year in which you sell it, the sub-total of income tax and special income tax for recovery is 30.63% and inhabitant tax is 9%.
(1) Special exemption of 30 million yen
The maximum amount of 30 million yen can be deducted when calculating taxable transfer income for certain items, regardless of whether they fall under the category of long-term transfer income or short-term transfer income.
Transfer income – Special deduction = Amount of taxable transfer income
Transfer income: Transfer price – (acquisition cost + transfer cost) Special deduction: 30 million yen (*)
If the transfer income is less than 30 million yen, the amount of the special deduction is limited to the amount of the transfer income.
(2) Special exception for reduced tax rate
If the home has been owned for more than 10 years as of January 1 of the year of sale, the tax amount will be calculated at the following reduced tax rate on the taxable long-term transfer income after applying the special exemption of (1) 30 million yen.
Taxable long-term capital gains up to ¥60 million
National income tax 10.21%,
Local inhabitant tax 4%.
Taxable long-term capital gains in excess of ¥60 million
National income tax 15.315%,
Local inhabitant tax 5%.
(3) Special provisions for replacement (exchange)
If you replace your home during the three-year period from the year before to the year after you sell it, you can defer the taxation of the gain on the transfer if you meet certain requirements, such as the transfer price is less than ¥100 million, you have owned the home for more than 10 years as of January 1 of the year you sell it, and you have lived in the home for more than 10 years.
However, it is possible to choose to apply the above (1) special exemption of 30 million yen or (2) special exemption of reduced tax rate.
If you sell your own home and incur a transfer loss
If you have a loss on the transfer of your own home that you have owned for more than five years as of January 1 of the year in which you sold it, you can deduct the amount of the transfer loss from your other income for that year according to (a) or (b) below.
If there is any amount of loss on transfer that could not be fully deducted in the year, it can be carried forward and deducted from income for each of the three years following the year (excluding the year in which the total income exceeds 30 million yen). In this case, the loss can be carried forward to the next year.
(a) Special exception for the purchase of a new home
If you have acquired a new home during the three years from the year before to the year after you sold your home, and if you meet certain requirements, such as having a mortgage balance for the acquisition of the new home at the end of the year, you can deduct the amount of loss on transfer of the home you sold through profit and loss and carry forward.
(b) Special exception when not buying a new home
If you sell your home with a mortgage balance as of the day before the date of conclusion of the contract for the transfer of your home, or if you meet certain requirements, you can deduct the amount of the loss on the transfer of your home (up to the amount remaining after deducting the amount of the consideration for the transfer of your home from the balance of the mortgage) from your profit and loss and carry it forward. If you have sold your own home, you can carry forward the loss (up to the amount remaining after deducting the amount of the consideration for the sale of the home from the balance of the mortgage loan).