Tax Credit for Housing Investment
By joe on Sat 06/20/09 9 Comments
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 |
For approved “Long Term Quality Housing” the rate increases to 1.2%.
The other condition is that total income of the applicant must be below Y30mm per year.
While the system is somewhat limited given the loan size restriction and income caps, given that interest rates on mortgages in Japan are about 1 to 2%, the government is basically paying the interest on your loan for the first 10 years. NICE!
Subscribe to Feed
If the total loan is 100 million does that mean you dont qualify or can you get 500k of relief ?
You qualify but you will only get the credit on up to 50 million of loan (or 500k per year if the rate is 1%). If you have a jumbo loan it is not helping you much but if you are borrowing around the limit it covers the interest which is pretty sweet.
Hi Joe
If I buy a property of 45 sqm, I would not qualify for the tax credit?
Hi Larry, my understanding is that you would not qualify if the floor area is under 50 sqm. Joe
Hi,
I am about to buy a 140 Millions and and 25 year old house I will also have 10 millions in renovation. I am about to take a 60 millions loan. Am I eligable for the 500000 yens tax reduction
rgds,
William
Hi William, tough one - the house might be too old. You should ask a tax accountant. You should be able to get relief at least for your rennovations.
Hi there. Thanks for the great article. What’s your source? Is there a Japanese article I can show
my wife? I’m having a hard time explaining in tho her in Japanese. Thanks
Hi there. Thanks for the great article. What’s your source? Is there a Japanese article I can show
my wife? I’m having a hard time explaining in her in Japanese. Thanks
For Japanese take a look at the MOF page below.
http://www.mof.go.jp/jouhou/syuzei/siryou/063.htm