Capital Gains Tax on Selling Property in Japan: How It’s Calculated

Transfer Income Tax (Joto Shotoku Zei)

When you sell property in Japan, the capital gains tax is called “joto shotoku zei” (讓渡所得稅) — “joto” can be understood as “transfer.” Joto shotoku zei is levied on the income a seller earns from transferring a property (referred to in Japan as “joto shotoku,” or transfer income). It is a form of income tax, but because it is non-recurring income, it must be reported separately and should not be combined with regular personal income tax.

Transfer Income Tax Rate

The tax rate depends on the holding period, split into long-term and short-term transfer, with 5 years as the dividing line. The holding period is counted based on January 1 of the year of sale — any period exceeding that count as one year. For example, a property purchased on October 5, 2015 and sold on May 1, 2021 would be treated as held for 6 years. If the owner is a Japanese resident holding a resident registration (“juminhyo”), resident tax must also be added to the calculation.
National Tax Agency: distinguishing long-term and short-term transfer income
https://www.nta.go.jp/taxes/shiraberu/taxanswer/joto/3202.htm

The national-tax figures above include Japan’s Special Reconstruction Income Tax surtax — an additional 2.1% of the national transfer-income-tax amount, in effect since 2013.

How Transfer Income Is Calculated

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Transfer income = Sale price − Acquisition cost − Transaction costs
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Transfer income is not simply the sale price minus the purchase price. Transaction costs incurred between the purchase and the sale — such as the administrative scrivener’s fee and the agency fee — can both be treated as transaction costs and deducted from the transfer income.

National Tax Agency: acquisition cost (building acquisition expense)
https://www.nta.go.jp/taxes/shiraberu/taxanswer/joto/3252.htm

How Acquisition Cost Is Calculated (Building Acquisition Expense)

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Acquisition cost = Land + Building − Building depreciation
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Acquisition cost is not simply the original purchase price — the purchase price must first be split into a “land” portion and a “building” portion, and the two are calculated differently.

National Tax Agency: how to calculate acquisition cost (building acquisition expense)
https://www.nta.go.jp/taxes/shiraberu/taxanswer/joto/3261.htm

If the consumption tax was stated when you bought a brand-new property, you can use that consumption tax figure to work out the value of the “building” portion, using this formula:

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Building = Consumption tax amount ÷ Consumption tax rate at time of purchase + Consumption tax amount
Land = Purchase price − Building
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For example, say you bought a brand-new 25㎡ property in Tokyo in 2015 for JPY 10,000,000, and the contract stated consumption tax of JPY 540,000, with the consumption tax rate that year at 8%. From this, the “building” value works out to JPY 6,750,000, the “land” value to JPY 2,170,000, and the “consumption tax” to JPY 540,000.
If no consumption tax or “building” value is stated, you can instead estimate it from the National Tax Agency’s published tables, based on the building’s structural type and floor area. Using the example above — a 2015 (Heisei 27) reinforced-concrete (“tekkin concrete”) building:

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Building = 25㎡ (floor area) x 240,200 = JPY 6,005,000
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National Tax Agency: building valuation estimate
https://www.nta.go.jp/taxes/shiraberu/shinkoku/tebiki/2020/pdf/O/O13.pdf

Depreciation Calculation

A “building” loses value over time, so depreciation must be deducted from the purchase price. Land, however, does not lose value over time, so it is counted at its original purchase price. The depreciation rate varies by building material — the Japanese government has set different depreciation coefficients for different structural types, and depreciation is calculated based on the property’s structural type. The depreciation formula for the “building” portion is:

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Depreciation = “Building” x 0.9 x Material coefficient x Holding period*

• Holding period: less than 6 months does not count as a year; 6 months or more counts as a full year

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Continuing the example above, since consumption tax was stated, the calculation uses the real figures:

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JPY 6,750,000 (building) x 0.9 x 0.015 (coefficient) x 6 years = JPY 546,750
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So JPY 546,750 must be deducted when calculating acquisition cost. The actual acquisition cost is therefore JPY 2,170,000 (land) + JPY 6,750,000 (building) − JPY 546,750 (depreciation) = JPY 8,373,250.

National Tax Agency: depreciation calculation
https://www.nta.go.jp/taxes/shiraberu/saigai/h30/0018008-045/05.htm

Worked Example

Consider the following example:
Owner — Ms. Zhang
Property: purchased a Tokyo property in October 2015 for JPY 10,000,000
Agency fee: JPY 360,000; administrative scrivener’s fee: JPY 10,000
Ms. Zhang sold the property in May 2021 for JPY 12,000,000
Agency fee: JPY 420,000; administrative scrivener’s fee: JPY 10,000
Ms. Zhang’s transfer income is:

“`
JPY 12,000,000 (sale price) − ( JPY 2,170,000 land + JPY 6,750,000 building − JPY 546,750 building depreciation ) − JPY 800,000 transaction costs
Transfer income = JPY 2,826,750
National transfer income tax = JPY 2,826,750 x 15.315% = approximately JPY 432,900
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So Ms. Zhang ultimately owes approximately JPY 432,900 in national transfer income tax — not 15% of the JPY 2,000,000 headline gain. (The 15.315% rate includes the 2.1% Special Reconstruction Income Tax surtax; a straight 15% figure, giving JPY 424,012, omits that surtax.) If Ms. Zhang is a Japanese resident, resident tax of approximately JPY 141,338 (5% of transfer income) may also apply.

Special Deduction

If the property being sold is the owner’s own residence (a Japanese national, or someone holding Japanese residency registered at that address) and the floor area exceeds 50㎡, a special deduction of JPY 30,000,000 applies. In the example above, since the property’s floor area is under 50㎡, no special deduction applies. Note that even where the floor area exceeds 50㎡, this exemption does not apply to a sale to your spouse or a direct family member. This exemption can also only be used once every three years, to prevent it being exploited for repeated flipping.

Conclusion

In short, the only capital gains tax that applies when selling property in Japan is the transfer income tax — a form of income tax, but on non-recurring income, so it must be reported separately. Because depreciation must be deducted in the calculation, it is possible to owe transfer income tax even when selling at the same price you paid to buy.

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