There are now some significant tax incentives for residents to buy or build your own home in Japan. The Tax Reform package announced by the government late last year has extended and increased the tax credit relating to Housing Loans. The key here is these are not income deductions but tax credits ! Which means the effective income deduction is quite large and of course the lower your income is the bigger the impact. There are of course a bunch of rules associated with this program, I have tried to summarise the main points below.
The tax credit system is available until December 31, 2013.
The credits are calculated on outstanding loan balance. The loan must be longer than 10 years and made for the purpose of:
- building or buying a home
- the land purchased with a home or
- renovations or extensions
The home must have a floor area of greater than 50 SQM. For a second-hand home the building must be less than 20 years old (or 25 years for fire resistant structures).
The tax credit is available for a period of 10 years from purchase. The table below shows the calculation of the tax credit for general housing. As you can see the credit is 1% of the loan balance up to a maximum loan amount of Y50mm. As an example, this means that if you buy a house for Y60mm and borrow Y50mm in 2009, you will receive a tax credit of Y500,000 in the first year and then 1% of your loan balance for the next 9 years.
| YEAR | PERIOD | MAX LOAN BALANCE |
TAX CREDIT RATE |
MAX TAX CREDIT |
|---|---|---|---|---|
| 2009 | 10yrs | 50mm | 1% | 500,000 |
| 2010 | 10yrs | 50mm | 1% | 500,000 |
| 2011 | 10yrs | 40mm | 1% | 400,000 |
| 2012 | 10yrs | 30mm | 1% | 300,000 |
| 2013 | 10yrs | 20mm | 1% | 200,000 |