Hi there! Thank you for visiting our website.
I am Masa, a Tax accountant in Japan.
Today I’m going to talk about Taxes when you sell your house.
When you sell your condominium, detached house, or land, you are subject to Income tax and Inhabitant tax.
However, if there is no “profit” from the sale of real estate, there is no need to pay taxes.
What does “profit” means here?
What about the Tax rate?
Here’s an easy-to-understand explanation of the taxes that apply when you sell your house (real estate)!
- 1 Transfer income (= profit) is subject to tax.
- 2 Tax rate
- 3 Almost no Taxes! What is the “My Home Exception”?
- 4 How to pay the Tax？
- 5 Having any concerns like these with your accountant?
Transfer income (= profit) is subject to tax.
If you make a profit from selling your house, you will have to pay Income tax and Inhabitant tax.
The profit does not mean the sale price itself.
The amount of money after subtracting the cost of the sale and the amount of money at the time of purchase from the amount of money sold becomes the “profit”.
Tax amount = (sale price – selling cost – acquisition price) × tax rate
※If you bought it too long ago to know the acquisition price, you can consider 5% of the sale price as the acquisition price and avoid paying tax on that amount.
Depending on how long you have held the property, the tax rate can vary by as much as double.
Held for more than 5 years as of January 1 of the year in which it was sold
20.315% (Income tax 15.315% + Inhabitant tax 5%)
The holding period is 5 years or less as of January 1 of the year of sale
39.63% (Income tax 30.63% + Inhabitant tax 9%)
Points to note [When to sell]
Since the holding period is determined by “as of January 1 of the year of the sale,” please be very careful when you sell.
For example, if you bought a house in April 2016 and sold it 5 years later in May 2021, your tax burden would almost double because as of January 1 of the year you sold it, you had owned it for less than 5 years.
If you miss the timing and can’t sell it, it will be a disaster, but from the perspective of the tax burden, it is better to sell it after 2022.
Almost no Taxes! What is the “My Home Exception”?
So far, we have told you that you will have to pay taxes when you make a profit from selling your house or other real estates.
If the real estate you sell is your home, you will not be taxed until the profit is 30 million yen.
The tax calculation method when you sell your own home is as follows.
Tax amount = (sale price – selling cost – acquisition price – 30 million yen) × tax rate
If you live in the house until just before you sell it, you can use this special exception without any problem, but if you move out and no longer live there, you need to be careful.
If you do not sell your house by December 31 three years after you no longer live in it, you will not be able to use this special exception.
Furthermore, the mortgage deduction cannot be used in conjunction with the mortgage deduction for a newly purchased property.
If you are selling your previous home to buy a new one, it is important to simulate well in advance whether you will use the 30 million yen exception for selling your previous home or the mortgage deduction for your new home.
How to pay the Tax？
Income tax and Inhabitant tax are imposed, but the method of paying the tax is different.
The first step is to file a tax return between February 16 and March 15 of the year following the sale of the property.
This is the document to declare “I made this much money as a result of selling real estate, and this is the amount of tax I have to pay.
Submit this to the tax office and pay the tax you calculated by yourself by March 15.
By filing an Income tax return, the data is shared by the tax office with the municipal office, so there is basically no need to file a tax return for just the Inhabitant tax.
The payment of taxes differs between company employees and self-employed persons as follows.
Inhabitant tax is deducted from your salary every month, and the tax on sale of the real estate will be added to your Inhabitant tax from June of the year after you sell the property.
Payments are made to your local government in four installments: June, August, October, and the following January of the year following the sale of the property.
The payment slip will be sent to you.
Having any concerns like these with your accountant?
Your tax accountant…
- changes every year
- suggests no tax-saving measures
- doesn’t give you financial statements in a timely manner
- doesn’t explain the contents of the statements
- is reluctant to use the cloud software
- rarely shows up to your office
- is always late to answer your questions
- is elderly and you’re worried about the near future
Lack of communication with tax accountants can cause incorrect accounting processing due to the mess of the contents of the bookkeeping.
As a result, it increases the risk of additional taxation of up to 40% through a tax audit which is conducted once every 3 to 5 years.
To prevent paying additional taxes, it is important to share accounting processing and the business environment with tax accountants on a daily basis and to take measures to address additional taxation risks at an early stage.
We, Masa Tax Consulting, not only consult on accounting contents but also provide tax audit preparation measures and proposals for tax-saving measures that are optimal for customers as the most casual/friendly tax accountant in Japan.
We now offer a free initial consultation and a first-month-free policy.
We do not force you to make any contract, so please feel free to contact us.
～The representative tax accountant will always respond responsibly.～