Apartment management is a popular real estate investment option for beginners because initial costs are relatively low.
However, many investors end up short of funds because their initial financial plans were too optimistic.

This time, we will continue from last time and introduce the topic of "apartment management and taxes."

Apartment management and taxes

Not all taxes are taken into account in business plans prepared by real estate agents. Taxes are often included in the business plan to carefully consider the initial investment, but taxes during the investment period tend to be overlooked.

Make sure to itemize it carefully and include it in your financial plan.

Income tax and resident tax

Income tax and local resident tax are taxes levied on profits for a year. For individuals, income is calculated separately as real estate income, but the final tax amount is calculated by multiplying the amount combined with other income by the progressive tax rate (comprehensive taxation). If your real estate income is in the red, you can reduce your income tax and local resident tax by offsetting it against other income.

Personal Business Tax

Personal income tax is levied on businesses such as real estate leasing, buying and selling, and parking lot management.
It is calculated by deducting 2.9 million yen from income and multiplying it by the tax rate of 5%.
It is difficult to determine whether something is being "operated as a business," but the decision is made based on a comprehensive assessment of factors such as income, loan amount, and, in the case of apartments, whether 10 or more rooms are rented out.

Property tax and city planning tax

It is calculated by multiplying the assessed value of land and buildings by a certain tax rate (in principle, 1.4% for fixed asset tax and 0.3% for city planning tax). A tax assessment notice and payment slip are sent by the city, town, or village every spring, and payment must be made by the due date.
There are tax relief measures in place for residential land, and apartments are also eligible for tax relief.

consumption tax

Consumption tax is a familiar tax. Businesses subtract the amount of consumption tax they have paid from the amount of consumption tax they have received and report the difference.
In the case of an apartment, it is considered a residential property rental, and the rental of a parking lot is considered a land rental, so both are tax-exempt. On the other hand, the rent for an office rented for business purposes is subject to consumption tax, so you will receive 10% consumption tax.

Registration and license tax, real estate acquisition tax, stamp tax

Registration and license tax, real estate acquisition tax, and stamp duty are taxes that are mainly levied when purchasing real estate.
The registration tax is a tax for real estate registration and is included in the bill from the notary public, and the stamp tax is the fee for the stamp affixed to the contract, so you will probably not forget these.
Regarding real estate acquisition tax, a payment slip will be sent by the prefecture several months after the property is acquired. For housing, the tax rate is 3% of the fixed asset tax assessment value for both land and building, but there are some reduction measures available.

Funding planning is centered on cash flow

Financial management in apartment management is not complicated. However, when taxes come into play, there may be discrepancies with the initial financial plan and you may find yourself short of funds.
By making a financial plan that takes into account the cash flow balance and taxes, you will be able to manage your rental property in a stable manner. If you are inexperienced, we recommend that you consult with a real estate investment expert or a tax accountant and manage your property in cooperation with them.