Japan’s capital gains tax on real estate is 20.315% if you owned the property for more than five years and 39.63% if you owned it for five years or less, with the holding period measured as of January 1 of the year you sell rather than the actual sale date. Both rates apply to Japanese citizens and foreign nationals, and both bundle national income tax, local inhabitant tax, and a 2.1% reconstruction surtax on the national portion. Primary residences get a ¥30 million deduction, and homes held over ten years qualify for an even lower rate on part of the gain.
How the Five-Year Holding Period Is Measured
The calendar-year rule is where sellers most often miscalculate. Your holding period runs from your purchase date to January 1 of the year you sell, not to the actual closing date. Buy in March 2021 and sell in June 2026, and by the calendar you’ve owned the property for over five years; for tax purposes, though, the period stops on January 1, 2026, which is less than five years. You’d pay the short-term rate.
The short-term rate of 39.63% breaks down into 30% national income tax, 9% local inhabitant tax, and the 2.1% reconstruction surtax on the national portion. The long-term rate of 20.315% is 15% national, 5% inhabitant, and the same surtax layer.1PwC Worldwide Tax Summaries. Japan – Individual – Income Determination The nearly 20-point spread between the two categories creates a real incentive to time your sale so it falls in the calendar year after your five-year anniversary passes.
Calculating Your Taxable Gain
The formula is straightforward: sale price minus acquisition cost minus transfer expenses equals your taxable gain. Each component has to be documented, and errors in any of them can either inflate your tax bill or attract an audit.
Acquisition Cost and the 5% Trap
Your acquisition cost is the original purchase price plus the expenses tied to that purchase: brokerage commissions, registration and license taxes, stamp duty on the purchase contract, and any judicial scrivener fees for title registration. Those figures come from your original sales contract, the Baibai Keiyakusho.
If you can’t produce documentation of what you originally paid, the tax office deems your acquisition cost to be just 5% of the sale price. On a ¥50 million sale that means ¥47.5 million gets treated as taxable gain regardless of your actual profit. This is the single most expensive mistake a seller can make, and it happens most often with inherited properties or purchases made decades ago. Store the original contract somewhere you can find it.
Building Depreciation
Land doesn’t depreciate, but buildings do, and depreciation reduces the acquisition cost you can claim. Japan uses straight-line depreciation with statutory useful lives that depend on construction type: 22 years for wooden residential buildings, 47 years for reinforced concrete. A wooden house you bought 20 years ago has been almost entirely written down, which raises the taxable gain when you sell.
Transfer Expenses
Costs you incur to complete the sale reduce the gain. These include the real estate agent’s commission, stamp duty on the sale contract, and advertising expenses. Demolition costs are generally deductible if you tore down a building to sell the land. Agent commissions in Japan are capped by law: 5% on the first ¥2 million of the price, 4% on the portion between ¥2 million and ¥4 million, and 3% on everything above ¥4 million. For most sales above ¥4 million, the quick formula is 3% of the price plus ¥60,000.
Inherited or Gifted Property
Property received through inheritance or as a gift carries over the previous owner’s acquisition cost rather than resetting to market value at transfer.2Japanese Law Translation. Income Tax Act – Article 60 The taxable gain can therefore stretch back decades, and the document problem compounds: you need records from the original buyer, not just from yourself. Without those records you’re stuck with the 5% deemed cost.
Foreign Currency Purchases
If you bought the property in a foreign currency, convert the acquisition cost into yen using the TTM rate published by your primary financial institution on the original transaction date. Alternatively, for real estate you can use the TTS rate for purchase costs and the TTB rate for sale proceeds, provided you apply the method consistently.3National Tax Agency. Conversion of Foreign Currency Transactions Into Yen Currency swings over a long ownership period can meaningfully change the yen-denominated gain. A weakening yen between purchase and sale inflates your reported gain even if your return in dollars or euros was modest.
Primary Residence Deductions
The ¥30 Million Deduction
Selling your main home in Japan lets you deduct up to ¥30 million from the taxable gain under Article 35 of the Special Measures Law Concerning Taxation. It’s available for both short-term and long-term gains and doesn’t depend on how long you owned the property. The home has to have been your actual day-to-day residence.
Recently vacated homes still qualify if the sale closes by December 31 of the third year after you moved out. Move in 2024, and you’d need to finalize the sale by the end of 2027. Demolished buildings can qualify too, as long as you sell the land within a year of demolition and the site hasn’t been used for other purposes in the meantime.
You can’t claim this deduction if you’ve used it (or certain other residential tax breaks) within the previous two years, and you can’t claim it on a sale to a spouse, parent, or child. The deduction is aimed at people genuinely moving between homes, not cycling properties for tax advantages.
Reduced Rate for Homes Held Over Ten Years
If you owned your primary residence for more than ten years as of January 1 of the sale year, remaining gains after the ¥30 million deduction are taxed at 14.21% on the first ¥60 million. Only gains above ¥60 million revert to the standard 20.315% rate.4KPMG. Taxation of International Executives: Japan Long-term homeowners often overlook this rate entirely.
Selling as a Non-Resident
If you’re no longer a resident of Japan when you sell, the buyer is required to withhold 10.21% of the gross sale price at closing and remit it to the tax authority. That withholding is a prepayment, not the final tax. Your actual liability gets calculated when you file, and the difference either comes back as a refund or gets billed.
Non-residents are generally exempt from the local inhabitant tax, so their effective rate is lower than a resident would pay on the same gain. Before leaving Japan, you must appoint a tax representative, the nozei kanrinin, to handle filings and receive correspondence.5National Tax Agency. Income Tax Guide for Those Leaving Japan The representative must live in Japan but doesn’t need to be a licensed tax professional; most sellers appoint an accountant or a trusted contact and file a Notification of Tax Agent with the relevant tax office before departing.
One boundary worth naming: Japan’s exit tax on departing residents with financial portfolios of ¥100 million or more does not apply to real estate, because the property remains physically in Japan and Japan can still tax it when you sell.6Grant Thornton Japan. Japan Tax Bulletin – Exit Tax When Individuals Leave Japan Leaving Japan doesn’t accelerate or trigger any real estate tax event on its own.
US Taxpayers and Double Taxation
Americans selling Japanese real estate owe tax to both countries, but the US-Japan tax treaty and the foreign tax credit prevent the same gain from being taxed twice. Article 13 of the treaty gives Japan the primary right to tax gains on real property located there.7US Department of the Treasury. US-Japan Income Tax Treaty The US still taxes the gain as part of your worldwide income, and you claim a credit for the Japanese tax paid on IRS Form 1116.8Internal Revenue Service. Instructions for Form 1116
The credit is capped at the lesser of the actual Japanese tax paid or the US tax attributable to the Japanese-source income. Because Japan’s 20.315% long-term rate is close to the US long-term rate for most taxpayers, the credit typically wipes out most of the US liability on a long-term sale. Short-term sales are trickier: Japan’s 39.63% rate usually exceeds the US tax on the same income, generating excess foreign tax credits that carry forward for up to ten years. Convert the Japanese tax paid to US dollars using the exchange rate on the date you actually paid it, not the sale date.
Filing, Payment, and Penalties
The filing window runs from February 16 to March 15 of the year after the sale. Sell in 2026 and you file between February 16 and March 15, 2027.5National Tax Agency. Income Tax Guide for Those Leaving Japan You submit to the tax office with jurisdiction over your residence, or over the property if you’re a non-resident. Japan’s e-Tax system is available as an alternative to paper filing, though the interface is mainly in Japanese.
Payment is due by March 15. Amounts under ¥300,000 can be paid at a convenience store or through a smartphone app.9National Tax Agency. Consumption Tax Guide – How to Pay Your Tax Larger amounts go by bank transfer, credit card through the NTA’s online portal, or automated withdrawal from a Japanese bank account. Automated withdrawal is the safest option if you’ve left the country.
Missing the deadline triggers two separate charges. The late-filing penalty is 15% of tax owed up to ¥500,000, 20% on the portion between ¥500,000 and ¥3 million, and 30% on anything above ¥3 million.10National Tax Agency. Overview of Additional Tax and Delinquent Tax Filing voluntarily before the tax office contacts you reduces that penalty to 5%. Separately, delinquent tax interest runs from the day after the deadline until you pay in full. For 2022 through 2025 the rate was 2.4% for the first two months and 8.7% after that. Rates for 2026 are set annually by the Minister of Finance based on short-term bank lending rates. Even at the lower initial rate, interest on a large capital gain adds up quickly.