Key Things to Consider When Selling Real Estate: How to Utilize Taxes and Loans

If you are considering selling your property, this article may provide you some insights about making the asset arrangement. We would like to share with you the information about the calculation method of basic taxes and the applicable tax rate according to the difference of holding period, and the possibility of further asset formation by using loans well.

1. the difference between the basic tax calculation and the applicable tax rate in the ownership period

The tax paid by an owner who owns a property for the purpose of having rent income should be “taxable transfer income” multiply by “tax rate”. This “taxable transfer income” is calculated by the following formula, in which we can see the tax amount is not calculated directly by transfer price (sale price) itself multiply by the tax rate. Instead, we subtract “acquisition cost” and “transfer cost” first to generate “taxable transfer income”, and we use it to calculate the real tax amount. (Table 1)

Taxable transfer income = transfer price – (acquisition cost + transfer cost)


Table 1

The “tax rate” varies greatly depending on the length of the holding period. If the holding year of the land or building is five years or less before January 1 of the year the sale happens, the transfer income is classified as “short-term transfer income”, if the holding period exceeds five years, the transfer income is classified as “long-term transfer income”. The applicable tax rates for the two are totally different. (Table 2)

Table 2

Of course, the detailed calculation for each individual case should be confirmed with the tax accountant. If owners are considering selling the property, however, 5 years can be one proper timing.

2. The possibility of further asset formation by using loans well.

Some property owners may think about selling the property for the purpose of investing in another property. In this case, if the existing property has a certain level of good yield, or if the existing property wasn’t purchased by loan, property owners do not really need to sell the property. Instead, you can consider mortgaging your existing property and the new property-to-buy to apply for loans from financial institutions. The loan terms and amount can vary according to the different review criteria of each bank. Some banks also provide loan options to overseas property owners. To utilize the loan well to leverage the asset you currently have should be an option when you are thinking to sell and reinvest in more properties in Japan. 

Hope our sharing will provide you some great insights and help you make some important decision!