Being a house owner in Japan has many advantages and low interest rates for housing loans are very attractive. Under certain conditions, you can also save a lot of money on tax incentives for housing loans.
Laws and regulations about tax may change over time but according to current incentives if you buy a house until the end of 2025 with a housing loan in Japan you can reduce the income tax and the inhabitant tax you pay for 13 years. This is called 住宅ローン控除(Juutaku Loan Deduction) 0.7% of your loan balance at the end of each year can be deducted from your income tax and inhabitant tax.
An example:
Let’s say your mortgage balance at the end of the first year is more than 30 million yen, the upper limit of the reduction you can receive depending on the condition of your house is 30 million yen, you are borrowing for 10 years and you pay more than 210,000 yen income tax.
Based on these assumptions:
30,000,000*0.7%=210,000 yen. You can save 210,000 yen as a tax deduction!
Any amount that cannot be deducted from your income tax can also be deducted from your inhabitant tax (up to 97500 yen)
Maximum loan balance for deduction changes based on the condition of the house also the limits will be further decreased in 2024 and finally abolished after 2025.
Here are the limits for 2024:
Basic conditions:
1 This is an incentive for a housing loan so you must be living in the house yourself. It cannot be used for investment purposes.
2 The floor area should be 50 sqm or more. For newly built houses 40 sqm or more.
3 Loan period must be 10 years or more.
For other conditions and exceptions please check the latest regulations or consult with tax experts.
Basic procedures to claim the deductions:
Even for those who use Year End Tax adjustments instead of filing Yearly Tax Return, for the first year of the loan a Yearly Tax Return must be filed. Company workers may continue using Year End Adjustments after the first year.
Documents to submit to the tax office:
1 Yearly tax return and 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)
2 Certificate of Balance of Loan as of the End of the Year (The bank sends this document every year)
3 The real estate registration certificate (can be obtained from Legal Affairs Bureau)
4 Purchase agreement (given by the real estate agency)
There is a great chance to save a lot from taxes for the next 13 years if you become a house owner until the end of 2025. Since the deductions differ based on the house and the income of the person, please check the rules in detail. Keskin
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