Mortgage Loan Tax Deduction Incentives for Homeowners in Japan to be Extended in 2022

The Japanese government has extended tax deductions for mortgage loans for homeowners for 2022 and beyond in order to spur economic recovery and help middle-income earners buy their own homes.

Here are the key incentives to be aware of.

1. Move-in date for home mortgage deduction period to be extended to December 31, 2025

This home mortgage loan deduction incentive will allow homeowners with outstanding loan balances to deduct 0.7% of the year-end mortgage balance from their income tax and resident’s tax.

  • For newly constructed homes, the deduction can be taken over a 13-year period.
    • To qualify for the deduction for newly constructed homes that receive their certificate of construction in 2024 or thereafter, the property has to also meet applicable rules for low-energy homes.
  • For existing homes, the deduction can be taken over a ten-year period.

Note that this is a change from the 1.0% deduction allowed in 2021.

Income Limits

The income qualification to take the mortgage deduction has also been relaxed. Previously to be able to qualify, total annual income had to be less than ¥30,000,000. This has been reduced to ¥20,000,000.

Previously the deduction was only allowed over a ten-year period. This was extended to 13-years when the consumption tax was raised to 10 percent on October 1, 2020, in order to mitigate the financial impact for homebuyers. Sales of newly constructed condominiums and free-standing houses are subject to consumption tax. Re-sale houses and apartments are not.

Floor Area Limits

The floor area requirement for newly constructed houses has also been relaxed to cover properties with a total floor area of 40-sqm or more, for properties which received their certificate of completion prior to 2023. This is an extension of the incentive that was originally introduced in 2021, which lowered the minimum required floor area from 50-sqm.

There is also an annual income limit of ¥10 million for taking this deduction. The income limit  was put in place because the deduction is meant to be used for owner-occupied homes, not investment properties and to encourage middle-income people to buy new homes. Many retail investors buy investment properties in urban centers that are smaller-sized apartments.

2. Extension of tax exemption for monetary gifts to be used for purchasing a home

This exemption will be extended for another two years (2022 to 2023) and covers money that is received in order to buy a home.

For homes certified as “good quality” housing, the maximum tax exempt amount is ¥10,000,000. For all other housing the maximum amount if ¥5,000,000.

This tax exemption can be used for both newly constructed and existing homes.

3. Extension of reduction for fixed-asset taxes for newly constructed homes only

The government will also extend for another two years (2022 to 2023) the special measure that allows owners of newly constructed homes to pay a lower assessed amount. For more on this, please see this article: Special treatment for residential property taxes.

Note that this is a change from what was discussed at the end of November 2021, when the government had indicated that this extension would be eliminated in 2022.


Source: Ministry of Land, December 24, 2021 press release (PDF in Japanese)

Lead image: Japanese apartment interior, iStock 177391510


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