Income tax on sale of house?

[Roger Van Zant]

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.

I bought the house in 2017 when it was twenty years old. I never took advantage of any "mortgage deduction"....is this only for new builds?

[Roger Van Zant]

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.

I see. Thank you. I will commit this official name to memory and take care of it in February 2024 when filing.
One more question : after selling the house, I moved to a new apartment still in the same prefecture, but in a different city.
Do I pick up this form from the tax office of the city my old house was in, or from the city I now live in?

[ClearAsMud]

One more question : after selling the house, I moved to a new apartment still in the same prefecture, but in a different city.
Do I pick up this form from the tax office of the city my old house was in, or from the city I now live in?

Also responding to the question about the loan deduction:

There are various purposes for which the housing-loan deduction can be used (here's the NTA's explanation relevant to 2022). If you never took the deduction, then the choice doesn't apply; but if your new apartment is a purchased one that you used a loan to buy, you should seek advice. I've only used the deduction for a new property, so I don't really know how it works in other cases.

Kakutei shinkoku forms are available at any tax office, or you can download them (currently the ones for 2022) from the NTA's site (forms and instructions for capital gains are listed in the second table, below the first), or you can use the online 確定申告書等作成コーナー (I don't know how far you can go online with regard to capital gains -- maybe another knowledgeable poster can help here). You file according to where you live when filing, although your address on January 1 of the filing year is important for residence tax. Other necessary documents (contracts and registration certificates) will be supplied by you as required.

[Roger Van Zant]

One more question : after selling the house, I moved to a new apartment still in the same prefecture, but in a different city.
Do I pick up this form from the tax office of the city my old house was in, or from the city I now live in?

Also responding to the question about the loan deduction:

There are various purposes for which the housing-loan deduction can be used (here's the NTA's explanation relevant to 2022). If you never took the deduction, then the choice doesn't apply; but if your new apartment is a purchased one that you used a loan to buy, you should seek advice. I've only used the deduction for a new property, so I don't really know how it works in other cases.

Kakutei shinkoku forms are available at any tax office, or you can download them (currently the ones for 2022) from the NTA's site (forms and instructions for capital gains are listed in the second table, below the first), or you can use the online 確定申告書等作成コーナー (I don't know how far you can go online with regard to capital gains -- maybe another knowledgeable poster can help here). You file according to where you live when filing, although your address on January 1 of the filing year is important for residence tax. Other necessary documents (contracts and registration certificates) will be supplied by you as required.

I see.
I am renting my new apartment. I don't want to own a house in Japan ever again!
Thanks for your input.

[goran]

・・・・ I don't want to own a house in Japan ever again!
Thanks for your input.

slightly off topic:
from the first post in this thread, you seemed to have made good profit within 6 years, why do you say you don't want to own again?

[Roger Van Zant]

・・・・ I don't want to own a house in Japan ever again!
Thanks for your input.

slightly off topic:
from the first post in this thread, you seemed to have made good profit within 6 years, why do you say you don't want to own again?

- Way too much time/money/effort spent with maintenance and DIY.
- Salary will never go up, yet house maintenance will get more and more expensive as it ages.
- Realized it makes little sense for a single guy to own a house here.
- Can now save way more money now that I have gone back to renting.

I got very, very lucky that a buyer fell in love with my house and acre of land and paid the asking price straight away.
Could have become a real ball and chain around my neck.

[Tkydon]

・・・・ I don't want to own a house in Japan ever again!
Thanks for your input.

slightly off topic:
from the first post in this thread, you seemed to have made good profit within 6 years, why do you say you don't want to own again?

The 8M cash out consists of 4.5M in the rise of the property price from Y13.5M to 18M, and 3.5M in rising equity in the property from the pay-down of the Outstanding Balance of the Mortgage.

Now the actual return on your investment would be calculated as follows:

Rate of Return % over the nearly 6 years = ((Cash Out 8M / (Down Payment + Costs and Other Investments ?M)) - 1) x 100 %

Annual Rate of Return over the nearly 6 years = (((Cash Out 8M / (Down Payment + Costs and Other Investments ?M))^1/6) - 1) x 100 %

e.g. You didn't say how much you put as the Down-Payment, but If the Down Payment + Costs and Other Investments was 4M, then the 4M has Grown to 8M (after tax, as it is tax free...)

((8M / 4M) - 1 ) x 100 %
= ( 2 - 1 ) x 100 %
= 100% Return over the life of the investment

Over 6 Years, that is an Annual Rate of Return of

((8M / 4M)^1/6 - 1 ) x 100 %
= ( 2^1/6 - 1 ) x 100 %
= (1.12246 - 1) x 100%
= 12.246% Annual Rate of Return, which is quite respectable.

Or Over 5 Years, that is an Annual Rate of Return of

((8M / 4M)^1/5 - 1 ) x 100 %
= ( 2^1/5 - 1 ) x 100 %
= (1.1487 - 1) x 100% = 14.87% Annual Rate of Return, which is also quite respectable.


Even if you take into account the Purchase and Disposal Costs and the DIY Costs you put into the property as investment, the return should still be pretty respectable...

[goran]

・・・・ I don't want to own a house in Japan ever again!
Thanks for your input.

slightly off topic:
from the first post in this thread, you seemed to have made good profit within 6 years, why do you say you don't want to own again?

The 8M cash out consists of 4.5M in the rise of the property price from Y13.5M to 18M, and 3.5M in rising equity in the property from the pay-down of the Outstanding Balance of the Mortgage.

Now the actual return on your investment would be calculated as follows:

Rate of Return % over the nearly 6 years = ((Cash Out 8M / Down Payment ?M) - 1) x 100 %

Annual Rate of Return over the nearly 6 years = (((Cash Out 8M / Down Payment ?M)^1/6) - 1) x 100 %

e.g. If the Down Payment was 4M, then the 4M has Grown to 8M (after tax, as it is tax free...)

((8M / 4M) - 1 ) x 100 %
= ( 2 - 1 ) x 100 %
= 100% Return over the life of the investment

Over 6 Years, that is an Annual Rate of Return of

((8M / 4M)^1/6 - 1 ) x 100 %
= ( 2^1/6 - 1 ) x 100 %
= (1.12246 - 1) x 100%
= 12.246% Annual Rate of Return, which is quite respectable.

Or Over 5 Years, that is an Annual Rate of Return of

((8M / 4M)^1/5 - 1 ) x 100 %
= ( 2^1/5 - 1 ) x 100 %
= (1.1487 - 1) x 100% = 14.87% Annual Rate of Return, which is also quite respectable.

What if 0 downpayment?

[Tkydon]

slightly off topic:
from the first post in this thread, you seemed to have made good profit within 6 years, why do you say you don't want to own again?

The 8M cash out consists of 4.5M in the rise of the property price from Y13.5M to 18M, and 3.5M in rising equity in the property from the pay-down of the Outstanding Balance of the Mortgage.

Now the actual return on your investment would be calculated as follows:

Rate of Return % over the nearly 6 years = ((Cash Out 8M / (Down Payment + Other Costs and Investments ?M)) - 1) x 100 %

Annual Rate of Return over the nearly 6 years = (((Cash Out 8M / (Down Payment + Other Costs and Investments ?M))^1/6) - 1) x 100 %

e.g. If the Down Payment was 4M, then the 4M has Grown to 8M (after tax, as it is tax free...)

((8M / 4M) - 1 ) x 100 %
= ( 2 - 1 ) x 100 %
= 100% Return over the life of the investment

Over 6 Years, that is an Annual Rate of Return of

((8M / 4M)^1/6 - 1 ) x 100 %
= ( 2^1/6 - 1 ) x 100 %
= (1.12246 - 1) x 100%
= 12.246% Annual Rate of Return, which is quite respectable.

Or Over 5 Years, that is an Annual Rate of Return of

((8M / 4M)^1/5 - 1 ) x 100 %
= ( 2^1/5 - 1 ) x 100 %
= (1.1487 - 1) x 100% = 14.87% Annual Rate of Return, which is also quite respectable.

What if 0 downpayment?

Undefined... Infinite return, but can't be absolutely zero as there are purchase and disposal costs, and he said he paid in money and time for DIY

If he only invested 2M in Costs and DIY Costs and Time...

((8M / 2M) - 1 ) x 100 %
= ( 4 - 1 ) x 100 %
= 300% Return over the life of the investment

Over 6 Years, that is an Annual Rate of Return of

((8M / 2M)^1/6 - 1 ) x 100 %
= ( 4^1/6 - 1 ) x 100 %
= (1.26 - 1) x 100%
= 26% Annual Rate of Return on his investment...

Or Over 5 Years, that is an Annual Rate of Return of

((8M / 2M)^1/5 - 1 ) x 100 %
= ( 4^1/5 - 1 ) x 100 %
= (1.3195 - 1) x 100% = 31.95% Annual Rate of Return on his investment...

[Roger Van Zant]

・・・・ I don't want to own a house in Japan ever again!
Thanks for your input.

slightly off topic:
from the first post in this thread, you seemed to have made good profit within 6 years, why do you say you don't want to own again?

The 8M cash out consists of 4.5M in the rise of the property price from Y13.5M to 18M, and 3.5M in rising equity in the property from the pay-down of the Outstanding Balance of the Mortgage.

Now the actual return on your investment would be calculated as follows:

Rate of Return % over the nearly 6 years = ((Cash Out 8M / (Down Payment + Costs and Other Investments ?M)) - 1) x 100 %

Annual Rate of Return over the nearly 6 years = (((Cash Out 8M / (Down Payment + Costs and Other Investments ?M))^1/6) - 1) x 100 %

e.g. You didn't say how much you put as the Down-Payment, but If the Down Payment + Costs and Other Investments was 4M, then the 4M has Grown to 8M (after tax, as it is tax free...)

((8M / 4M) - 1 ) x 100 %
= ( 2 - 1 ) x 100 %
= 100% Return over the life of the investment

Over 6 Years, that is an Annual Rate of Return of

((8M / 4M)^1/6 - 1 ) x 100 %
= ( 2^1/6 - 1 ) x 100 %
= (1.12246 - 1) x 100%
= 12.246% Annual Rate of Return, which is quite respectable.

Or Over 5 Years, that is an Annual Rate of Return of

((8M / 4M)^1/5 - 1 ) x 100 %
= ( 2^1/5 - 1 ) x 100 %
= (1.1487 - 1) x 100% = 14.87% Annual Rate of Return, which is also quite respectable.


Even if you take into account the Purchase and Disposal Costs and the DIY Costs you put into the property as investment, the return should still be pretty respectable...

I didn't pay a down-payment. Got a 100% mortgage.
I estimate I spent 1.5m yen on DIY and maintenance in the six years I lived in the house.
Yes, I'm pretty happy with what I sold it for.
I now have a small nest egg which I can put in the new NISA from 2024, plus set myself up with a six-month emergency fund....and a much needed vacation out of Japan!