Personal use of investment property purchased for income tax relief

[Moneymatters]

Firstly. Yes. I know it must be in Japan. I’m just wondering what personal use I could make of an investment property whilst benefiting from the income tax relief.

I won’t provide the link but I’ll copy some text by way of example. “ Suppose you buy an old wooden house worth ¥10,000,000 (not including the value of the land [no depreciation]), already, say, 30 years old (fully depreciated). However, when you buy it, a new, four-year depreciation schedule starts. For the next four years, you can write off ¥2,500,000 from your income tax for that building. This affects not only rental income, but income from your day job, too.”

So a few questions if I may.
1. Is that 4 year straight line depreciation of the whole value true, once the limit of a construction type is exceeded? Things are rarely quite so simple.

2. How is the valuation of the building calculated? E.g. just purchase price or based on something else?

3. What do I need to do to make this considered an investment property? E.g. does it need to be for long term tenants only or could I just register it on Airbnb.

4. And importantly. Are there any issues with me using it when it’s not being rented out?

5. Any grace period when I can benefit from the depreciation for income tax relief whilst renovating a place to be suitable for rental.

Hopefully these are valid questions..

[Teflon]

Firstly. Yes. I know it must be in Japan. I’m just wondering what personal use I could make of an investment property whilst benefiting from the income tax relief.

I won’t provide the link but I’ll copy some text by way of example. “ Suppose you buy an old wooden house worth ¥10,000,000 (not including the value of the land [no depreciation]), already, say, 30 years old (fully depreciated). However, when you buy it, a new, four-year depreciation schedule starts. For the next four years, you can write off ¥2,500,000 from your income tax for that building. This affects not only rental income, but income from your day job, too.”

I don't know the answer to your questions, but I've been receiving unsolicited messages on LinkedIn every couple of months that propose something similar to what you've described. The solicitations always include an invitation to meet for coffee so the representative can provide details about how it works, with examples of the tax savings, etc. Here is a copy of a message I received recently which I've Google translated for my benefit:

Our company is a developer of investment condominiums "GALICIA series" that sells 61 units in Tokyo, and customers purchase from about 100,000 yen with their own funds for the purpose of asset formation while reducing the tax burden and inflation measures. We would like to meet with you for about an hour between work or on Saturdays and Sundays to propose operational examples, risks, and countermeasures.

Of course, I don't think it's something you're considering right now, so I'd like to start by gathering information at a time and place that's convenient for you. (A coffee shop near the telework destination, a lounge on the 1st floor of the Palace Hotel in Otemachi, etc.). I can provide actual examples of final tax returns that are not available on the internet, and we can also give you a simulation of income and expenditures based on the bank and interest rate conditions that you can actually use.

I would appreciate it if you could reply with a simple reaction such as whether you are interested or the date and time.

Thank you.

I've been thinking about meeting the rep for coffee to see exactly how it works but I've been putting it off because my Japanese is not very good, and I get the impression that he doesn't speak English. Nevertheless, I'm still curious, and sipping coffee at the Palace Hotel sounds super posh! Anyway, if you are interested in meeting this guy or speaking with one of the other reps who have contacted me then I can PM you their LinkedIn details.

[RetireJapan]

I've been thinking about meeting the rep for coffee to see exactly how it works

Sounds interesting and I would be kind of interested in hearing the pitch so I could get a blog post out of it

But I would keep in mind that if this was actually a decent real estate opportunity, it would have sold already to established people. The fact that they need to message random people on LinkedIn is not a good sign...

[imaginatorium]

Hmm. Actually we live in a 30-yr old house. Would anyone want to offer us 1000man for it? It all sounds a bit fishy to me...

[Tkydon]

The case of New Investment Condominiums being sold by the Developer and the case of a 30 year old Timber Framed House are quite different.
If I have time, I will write up the two different scenarios for your reference.

[Moneymatters]

Obviously I fully appreciate all the responses.
I’ve also noticed a lot of targeted advertising about real estate investment with tax reduction.
Many of the ones I see start with “if you are earning over 5mil and not doing this you’re missing out!”
I also found a YouTube channel seemingly dedicated to counseling people who are losing money each month as a result of these schemes. So that’s a thing..

Anyway. I’m not in the market. Thx.

I’m just thinking to buy a second house/weekend place for myself and wondered, as per my questions, if I could leverage the much publicized depreciation on investment property scheme.

[Tkydon]

Obviously I fully appreciate all the responses.
I’ve also noticed a lot of targeted advertising about real estate investment with tax reduction.
Many of the ones I see start with “if you are earning over 5mil and not doing this you’re missing out!”
I also found a YouTube channel seemingly dedicated to counseling people who are losing money each month as a result of these schemes. So that’s a thing..

Anyway. I’m not in the market. Thx.

I’m just thinking to buy a second house/weekend place for myself and wondered, as per my questions, if I could leverage the much publicized depreciation on investment property scheme.

I understand your requirement.

I think it is not possible to use Depreciation as an Expense if you are not producing income from the property, against which to charge the depreciation expense. If it was majority rented out through say holiday lets or AirB&B, and you ran it as a business, and then used it occasionally for your personal use, then it may be possible. You would need to consult with a Tax Accountant.

I will still try to write up what I understand of the Tax Saving Strategy for the parties that expressed an interest...

[Moneymatters]

…

I understand your requirement.

I think it is not possible to use Depreciation as an Expense if you are not producing income from the property, against which to charge the depreciation expense. If it was majority rented out through say holiday lets or AirB&B, and you ran it as a business, and then used it occasionally for your personal use, then it may be possible. You would need to consult with a Tax Accountant.

I will still try to write up what I understand of the Tax Saving Strategy for the parties that expressed an interest...

Thank you. And I think you are right. It would be a glaring loophole if you could rent out your own holiday cottage a couple of times a year then benefit the depreciation.

[Tkydon]

The case of New Investment Condominiums being sold by the Developer and the case of a 30 year old Timber Framed House are quite different.
If I have time, I will write up the two different scenarios for your reference.

To close the loop, as promised here, I wrote up a 101 on Retail Investment Property located in this other thread:

viewtopic.php?p=29360#p29360