Income tax on sale of house?

[Roger Van Zant]

I sold my house back in June this year, and ended up with 8m yen in my pocket after paying off the remaining mortgage and real estate agent/scrivener fees.
A coworker is adamant I have to declare and pay income tax on this 8m yen.
I was under the impression that this sort of thing falls under capital gains tax, and the yearly personal allowance is something like 29m(?) yen; hence my capital gains tax liability being zero. (Apparently I have to fill out a form in February of next year and simply submit it, but I will have nothing to pay)

Do I have to declare this 8m yen and pay income tax (所得税) on it?

I have never done my own taxes in Japan. I've always worked for a company and they always do everything for me.
The only actions I take are (1) fill out the tax form they give me once a year with my name, address, and write 本人 somewhere on it; and (2) hand them the little postcard I get from the iDeCo people once a year.

Can anyone (someone who has sold a house here?) advise what I have to do?

Pertinent information:
- bought the house in 2017, sold it in 2023 (lived in it for more than five years)
- bought for 13.5m yen, sold for 18m yen.

Apparently my coworker paid income tax when he got money from the sale of his old house. However, I believe he inherited the house, lived in it for decades, then had it demolished, and then sold just the land only. So our situations are quite different. Yet he keeps saying what I did falls under 売買, and therefore I must pay income tax, like he did.

Thanks.

[RetireJapan]

I believe your interpretation is more correct.

Easiest way to clear it up would be to to ask the tax office.

But it seems like your coworker is confused and doesn't know what they are talking about.

[Roger Van Zant]

I believe your interpretation is more correct.

Easiest way to clear it up would be to to ask the tax office.

But it seems like your coworker is confused and doesn't know what they are talking about.

He's an older guy and therefore my 先輩 (Jesus, how I hate that word!), so I just nodded along and said I would look into it.
But, yeah, I will check with the tax office to be sure.

[beanhead]

The tax on real estate profit is called 譲渡所得税 and it is considered sort of special income tax, so he is kind-of right, I suppose.
For the rest, your understanding is correct about the 30M yen.

As Ben said, the tax office will be able to help. They will confirm your understanding, I believe. See articles below:

https://nakajitsu.com/column/47709p/
https://ieul.jp/column/articles/65/

[Tkydon]

You have to pay Capital Gains Tax on any Capital Gain you made on the property.

Capital Gain = Selling Price - Purchase Price - Acquisition Costs - Divestiture Costs - Any Depreciation Claimed on a Rental Property

If the Capital Gain is less than ¥500,000, or ¥30M if the property was your primary residence, then it is under the Capital Gain Special Deduction Allowance, and no Capital Gains Tax is due, and you do not need to file.

If the Capital Gain is negative, then it is actually a Capital Loss, and no Capital Gains Tax is due, and you may be able to claim the loss against other capital gains...

It doesn't matter how much cash you actually received.

If the Capital Gain is more than ¥500,000, or more than ¥30M for your Primary Residence, and if you owned the property for less than 5 years, then you have to pay Short Term Capital Gains at 40.63% (30% National, 0.63% Reconstruction, and 10% Residents' Taxes)

If the Capital Gain is more than ¥500,000, or more than ¥30M for your Primary Residence, and if you owned the property for more than 5 years, then you have to pay Long Term Capital Gains at 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes)

[Beaglehound]

You have to pay Capital Gains Tax on any Capital Gain you made on the property.

If you bought it for 20M and sold it for 30M, you would pay Capital Gains on Y30M - Y20M - Selling Costs = Capital Gain

If this value is less than 500,000, then it is under the Capital Gain Allowance, and no Capital Gains Tax is due.

If this value is less than 0, then it is actually a Capital Loss, and no Capital Gains Tax is due, and you may be able to take the loss against other capital gains...

If it is more than Y500,000, and if you owned the property for less than 5 years, then you have to pay Short Term Capital Gains at 40.63% (30% National, 0.63% Reconstruction, and 10% Residents' Taxes)

If it is more than Y500,000, and if you owned the property for more than 5 years, then you have to pay Long Term Capital Gains at 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes)

But if it was his main residence, as seems to be the case here, this is all moot due to the 30m deduction, right?

[RetireJapan]

You have to pay Capital Gains Tax on any Capital Gain you made on the property.

If you bought it for 20M and sold it for 30M, you would pay Capital Gains on Y30M - Y20M - Selling Costs = Capital Gain

If this value is less than 500,000, then it is under the Capital Gain Allowance, and no Capital Gains Tax is due.

If this value is less than 0, then it is actually a Capital Loss, and no Capital Gains Tax is due, and you may be able to take the loss against other capital gains...

If it is more than Y500,000, and if you owned the property for less than 5 years, then you have to pay Short Term Capital Gains at 40.63% (30% National, 0.63% Reconstruction, and 10% Residents' Taxes)

If it is more than Y500,000, and if you owned the property for more than 5 years, then you have to pay Long Term Capital Gains at 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes)

There is a 30m yen tax free allowance for selling a residence: https://www.nta.go.jp/taxes/shiraberu/t ... o/3302.htm

[Tkydon]

Ah, yes. Amended, and for depreciation...

[ClearAsMud]

The tax on real estate profit is called 譲渡所得税 and it is considered sort of special income tax, so he is kind-of right, I suppose.

Right -- "capital gains" in Japanese is jōto shotoku (譲渡所得). Notice the shotoku part, which means "income." From the NTA's perspective, jōto shotoku is one form of income reported on a kakutei shinkoku, along with nine other types of income, each with its own specific rules for calculating the taxable amount. English uses the term "capital gains" for this particular type of income, but Japanese sticks with the term "income" (which it is, unless you have a loss), so your senpai isn't necessarily ignorant or confused -- more likely just not aware of the standard English term. I wouldn't judge him(?) too harshly.

You will presumably file a kakutei shinkoku next year and use the special deduction available to those selling a personal residence to avoid the capital-gains tax.The full official name of this deduction is -- are you ready? -- 居住用財産を譲渡した場合の3,000万円の特別控除の特例, and you can find lots of Japanese sites explaining it, including the NTA's. It's more than just submitting a form, but as long as you qualify for the deduction (basically, it must have been your primary personal residence and you can't have sold it to a relative), there will be no capital-gains tax. One caution: the deduction can't be used in conjunction with the mortgage deduction, so if you've been taking advantage of that, you have to choose between the two.

[ClearAsMud]

One caution: the deduction can't be used in conjunction with the mortgage deduction, so if you've been taking advantage of that, you have to choose between the two.

I'll add a clarification here, along with the usual caveat that I'm no expert. The main reason to worry about choosing between these two deductions is if you've taken out a loan to buy a new house the same year you want to use the special deduction for capital gains. If you choose the capital-gains deduction for that year, you lose the entire mortgage deduction on your loan, so you'd need to do a comparison to see which deduction is more favorable. Also, if you are still taking the mortgage deduction on the previous house, there is apparently an amending procedure to go through to be able to use the capital-gains deduction for the year of sale. Ask the tax office for advice if either situation applies.

In any case, income (shotoku being net income rather than gross income) from capital gains is reported on a kakutei shinkoku, and the up-to-30M yen special deduction for selling a personal residence is just that -- a deduction that has to be claimed and not an untaxable amount below which reporting is unnecessary. I do not believe that the statement in an earlier post about not needing to file is accurate. Check with the tax office or a tax professional for reliable advice, but I'm pretty sure you'll need to file a kakutei shinkoku next year that will include such documentation as the property's acquisition price and sales price.