How to Claim Tax Deductions and Cash Back Benefits for Home Buyers in Japan: 2019 Incentives Explained

As the Abe administration has committed to raising the consumption tax to 10% on October 1, 2019, the government has also put forward various policies and incentives to keep consumer demand buoyant in the face of higher prices for everything from durable consumer goods to cars and homes.

One of the key incentives in the residential real estate sector is a 3-year extension of the mortgage deduction, which is meant to help bolster demand for newly constructed homes, which are subject to consumption tax (as opposed to re-sale houses and apartments, which are not).

Other incentives include:

  • Cash back (Sumai kyufukin) incentives for buying a home
  • An increase in the tax exemption limit for monetary gifts (for example, fom parents) used to buy a home
  • Introduction of a housing point system to incentivize energy-saving, earthquake-resistance and barrier-free construction

Claiming the Home Mortgage Deduction

The home mortgage loan deduction currently lets homeowners with outstanding loan balances deduct 1% of the year-end mortgage balance from their income tax and resident’s tax. This deduction currently can be taken over a 10-year period for outstanding balances of 40 million JPY or less, so the maximum deduction comes to 400,000 JPY. If your home is certified as “long-term excellent housing” (長期優良住宅) or certified as “low-carbon housing” (低炭素住宅), this deduction applies to balances of 500 million JPY or less, or a maximum of 500,000JPY per year.

In the policy outline recently put out by the government, this deduction will be extended for three years, meaning that the maximum deduction period would be thirteen years (but the actual amount allowed to be deducted will vary; please see the section below on “What happens from the 11th year?”).

When will you be moving into your new home?

If you start residing in your new home from October 1, 2019 to December 31, 2020, the new (10%) consumption tax will be assessed on the price of the building, and you will be able to qualify for the 3-year extension on the mortgage deduction.

If you sign a contract to buy a home by March 31, 2019, a consumption tax rate of 8% will be assessed on the price of the building, but you will only be able to take the deduction for the current 10-year period. Also, please note that consumption tax is not charged when purchasing a re-sale residential property.

What happens from the 11th year?

From the 11th year (for a 3-year period), you can take the smaller deduction of the following two calculations:

  1. Outstanding loan balance x 1% (up to a maximum loan balance of 40 million JPY)
  2. Purchase price of the property x 2% divided by 3 (up to maximum property price of 40 million JPY)

If the property is certified “long-term excellent housing” or “low-carbon housing”, these maximums increase to 50 million JPY.

Calculation 2. above is based on the idea that you should be able to deduct 2% of the building’s price over a 3-year period.

Cash Back Housing Benefit (Sumai Kyufukin) for Home Buyers

When the consumption tax was previously increased from 5% to 8% (in 2014), the government introduced a “cash back” incentive for lower-income home buyers who might not otherwise benefit very much from the mortgage deduction explained above. This benefit is called “Sumai Kyufukin” (すまい給付金). In this incentive scheme, home buyers get a certain amount of cash back, depending on their income level. When the consumption tax increases to 10%, the maximum amount of cash back will increase to 500,000JPY from 300,000JPY.

Other benefits for home buyers: Gift Tax Limit Increase & Housing Point System

Gift Tax Exemption Limit Increase

As was already announced in the 2015 tax reform, the tax exemption for monetary gifts (for example, received from parents) to buy a home will be increased to 25 million JPY (from 7 million JPY) after the 10% consumption tax increase, for a period of one year. This upper limit will increase to 30 million JPY in cases where the home being purchased meets certain earthquake-resistance, energy-saving, and barrier-free requirements.

Housing Point System – Exchange for gifts

In the upcoming fiscal year budget, a “housing point system” is also expected to be included that will award points to people who buy or build homes that are meet certain energy-saving, earthquake-resistance, and barrier-free standards, etc. Home buyers will be able to exchange points for gifts.

You may also be interested in: How the 2019 Consumption Tax Increase Will Affect Home Buyers and Sellers in Japan

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