Capital gains tax is a tax levied to individuals and corporations on the profit earned from the sale of their real estate property. Please take note that this is not imposed on your sale proceeds but on the gain only, so if there is no gain then you do not get taxed. Plus, Japan provides exemption that allows homeowners to exclude up to 30 million yen of their gain from being taxed when they sell their primary residence (自己の居住用 Jiko-no-kyo-ju-yo), so you may not need to pay the tax at all if this applies to you. Calculating capital gains tax involves determining the taxable capital gain and then applying the applicable tax rate which varies depending on the holding period, in other words, whether the gain is short-term or long-term. Taxable capital gain can be obtained by using this formula below.

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Taxable capital gain = Proceeds from sale – ( acquisition fees + conveyancing fees ) － special tax reduction for primary residence*

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Acquisition fees

• Purchase price, construction cost, renovation fee, with depreciation cost deducted

• Registration tax, acquisition tax, stamp duty

• Surveying fee and land preparation costs

• If you do not know or cannot prove your acquisition fees, only 5% of the proceeds from your sale can be counted.

 

Conveyancing fees

• Agency fee

• Stamp duty

• Eviction fee to sell your property vacant

• Demolition fee to knock your house down in order to deliver as vacant lot​

Capital gains tax for primary residence

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If the property you are selling is your primary residence, a 30 million yen special tax reduction or exemption is available to apply towards your capital gain regardless of the number of years of your residence. Furthermore, if you have owned your primary residence for more than 10 years and your gain is greater than 30M, 14.21% is taxed on gain up to 60M, and 20.315% on any gain beyond. Otherwise, the remaining gain after the 30 million yen reduction is taxed at the same short-term/long-term rate as a non-primary residence.

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• If you take this special tax reduction for primary residence, you will not be eligible for the housing loan tax credit (住宅ローン控除 Jyu-taku-loan-kojo) when buying your next home using a mortgage loan for the next 2 years.

• If you have used this special tax reduction within the last 2 years, you cannot use it again this time.

• You are eligible for this special tax reduction only when you sell your primary residence within 3 years from the time you stopped residing there.

 

Capital gains tax for non-primary residence

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Short-term possession

If your holding period is 5 years or less (counting from Jan 1st of the year of purchase, not 5 years from the purchase date)

Taxable capital gain ×　30.63% (+9% of municipal tax)

 

Long-term possession

If your holding period is more than 5 years (counting from Jan 1st of the year of purchase, not 5 years from the purchase date)

Taxable capital gain ×　15.315% (+5% of municipal tax)

 

Municipal tax will not be imposed in both long-term and short-term sale if you are a non-resident. However, in principle, this only applies if you do not possess any properties whatsoever in Japan as of January 1st of the following year of the sale. If you possess an office, a business facility, or any other real estate in Japan which can be used as residence, municipal tax will apply.

 

Capital gains tax must be paid, and tax reduction application reported between Feb. 16 – Mar. 15 of the following year of the sale at your nearest local tax office.

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Summary of Capital Gains Tax Rates (including both national and local/municipal tax)