Learn real estate management

Q: What does it mean to have tax savings through real estate management?

A: The amount of income tax and local tax we pay is determined by our "taxable income" after various deductions have been made from our salary.
Even if you receive rental income from real estate, you will be treated as having a "loss on your books" by recording expenses such as depreciation and interest on loans, and this loss will be added to your "taxable income" from your salary (= offset against profit and loss) to reduce your taxable income. In other words, a decrease in taxable income may result in a reduction in the amount of tax you pay.
This is the basis for the system that allows you to save on taxes through real estate management.

In this case, by filing a tax return once a year, the income tax deducted in advance will be refunded (the amount of resident tax to be paid the following year will be reduced). However, this tax saving effect is not permanent. Also, the depreciation method has changed since April 2016, so we cannot support purchasing a property "only for the benefit of tax savings."

This also affects the "book value calculation" involved when selling a property, so please be sure to fully understand the advantages and disadvantages of this tax-saving effect.How to deal with taxes(See also

Q: Can I receive the same "home loan tax deduction" as when I bought my own home?

A: In order to be eligible for the housing loan deduction (special deduction for home acquisition, etc.), the property must be for your own residence.
The purpose of purchasing income-generating real estate is to have a third party live in it as a tenant, so this requirement does not apply. Therefore, the home loan deduction cannot be applied.

Q: I've heard that real estate is an effective way to avoid inheritance tax...

A: When determining the amount of inheritance tax to be levied, if the amount is held in cash, 100% of the amount will be subject to taxation.
However, in the case of real estate, the tax amount is determined based on the inheritance tax road value (an assessment value of approximately 80% of the official land price) in accordance with the provisions of tax law.
Furthermore, if the target property has a tenant or there is an outstanding loan balance, this will be reduced or deducted from the assessed value, which is said to be advantageous in terms of inheritance tax planning.
For example, rather than holding 50 million yen in cash, you can reduce the amount of tax you are taxed by converting it into real estate worth over 50 million yen (market price), which would only be worth about 20 million yen in road value.

Following the inheritance tax reform in January 2015, which expanded the base of people subject to taxation, inheritance tax measures using real estate have become a hot topic.

Taking notice of this, something called "tower apartment tax savings" appeared for a while, but this method takes advantage of the fact that the road value is exactly the same for a room on the first floor and a room on the top floor. The road value is the same, but the market price is higher on the top floor, so if you buy an apartment there with a loan, your tax bill will definitely go down. However, there is a growing trend to put a stop to this method, so it is important to think with the assumption that "the law will change eventually."

Q: What taxes are levied on real estate?

A:
1. Stamp duty (national tax)
This is a tax levied at the time of purchase and sale. It is affixed to "real estate purchase and sale contracts" and "money consumption loan agreements (loan contracts with banks)." It is considered paid by purchasing a stamp and affixing it to the relevant document. Please note that if you fail to affix this stamp, you will be subject to a penalty tax of three times the amount.

2. Registration and license tax (national tax)
This is a tax that is levied only once when you purchase and register a property. It is generally included in the registration fee. The registration fee is made up of the fee for the judicial scrivener and this registration license tax. Conversely, if you have a loan remaining when you sell the property yourself, you will be charged a "cancellation registration fee."
The amount varies from property to property, so please check.

3. Real estate acquisition tax (prefectural tax)
This is a one-time tax levied when acquiring real estate other than through inheritance.
There is a tax exemption if the requirements for reduction, such as "for personal residence, over 50 m2" are met, so people who have only ever bought a home may not be aware of its existence.
There is a time lag between acquisition and payment, so be sure to set aside a proper budget.

4. Fixed asset tax/urban planning tax (municipal tax)
This is the only tax on real estate that is levied annually, and is classified as a running cost. It is levied for owning real estate, and is levied based on the assessed value in the tax register of each city, ward, town, or village. The amount varies for each property, and the assessed value is reviewed every three years.
You can choose to pay in four installments or pay all at once.

5. Capital gains tax (national tax)
This is income tax to be paid when profits are made by selling (transferring) property owned.
If there is a profit remaining after subtracting the initial purchase price from the selling price, this is taxable income. The tax rate varies depending on the holding period.