The sale price is not the taxable gain
Japanese real-estate capital gain is calculated from sale consideration after subtracting the supported acquisition cost and qualifying transfer expenses under current rules. Building depreciation can reduce basis. The classification as short-term or long-term depends on the ownership period measured under the statutory 1 January rule, not simply the number of anniversary years between purchase and sale.
Build the gain file from the original acquisition onward. Reconstructing basis after a sale offer arrives can lose deductions and create delay.
Reconcile gross sale proceeds
Record contractual price, land-building allocation, consumption tax where applicable, adjustments, retained deposits, compensation, fixtures, and related payments. Separate loan payoff; repaying debt reduces seller cash but does not itself reduce property sale proceeds for gain.
For a non-resident seller, gross-price withholding may apply at settlement subject to the current NTA rule and exception. Show gross proceeds, withheld tax, net cash, and final filing separately.
If the property is co-owned, allocate proceeds and basis under actual ownership and funding. Do not report the transaction as one taxpayer merely because one bank account receives funds.
Build supported acquisition basis
Start with original land and building price and capitalised purchase costs under professional advice. Preserve contract, settlement statement, brokerage, registration, acquisition tax, scrivener, construction, design, and other evidence. Some costs receive different treatment; do not add every historical cash outflow automatically.
Where the original contract does not provide a reliable land-building allocation, use a supportable method with tax advice and evidence such as assessed values or appraisal. The choice affects building depreciation during rental and remaining basis at sale.
If actual acquisition cost cannot be supported, Japanese rules can provide a deemed-cost method. That fallback can produce a much larger gain than the economic result, making document retention valuable.
Track improvements and depreciation
Maintain a fixed-asset register distinguishing repairs deducted during ownership from capital improvements added to basis and depreciated. Record acquisition date, cost, structure, useful-life method under current rules, rental and personal-use periods, additions, disposals, and accumulated depreciation.
An expensive renovation does not automatically add its full invoice to sale basis if parts were repairs, depreciated, disposed, or unsupported. Keep itemised invoices, plans, completion evidence, photographs, and accounting treatment.
For a formerly rented building, basis can be lower because of depreciation treatment. Compare book, tax, and cash records rather than relying on original purchase price.
Identify transfer expenses
Potential transfer expenses can include brokerage and other directly related sale costs under current rules. Mortgage principal is not a transfer expense. Renovation intended to improve saleability can require careful classification. Obtain advice and preserve invoices, contract, advertising, demolition, surveying, legal, and registration-discharge records.
Build a closing statement that separates seller cash from taxable calculation. Loan payoff, tax withholding, tenant deposit, property-tax adjustment, and sale expenses affect cash in different ways.
Apply ownership-period and relief rules correctly
NTA guidance distinguishes long-term and short-term property gains based on ownership as of 1 January in the year of sale. A property sold shortly after its fifth purchase anniversary can still fall into the short-term category depending on dates. Calculate using the exact acquisition and sale years.
Residence-related deductions, rollover, loss treatment, special rates, corporate treatment, inherited basis, and treaty or home-country consequences depend on facts and current law. Do not model a home relief for an investment or second home without qualification.
For an inherited property, obtain the decedent's acquisition records and succession evidence. The heir's cash outlay is not automatically the full basis.
Worked illustration
Assume gross sale proceeds of JPY 120 million, supported remaining acquisition basis of JPY 82 million after relevant depreciation and additions, and JPY 4 million of qualifying transfer expenses. Illustrative gain is JPY 34 million. Tax then depends on taxpayer, ownership-period classification, relief, and current rates.
If a JPY 50 million mortgage is repaid, seller cash before tax and other adjustments falls, but the gain remains JPY 34 million in this simplified illustration. Debt and taxable gain are separate.
Prepare before marketing
Assemble registry, purchase contract, acquisition invoices, fixed-asset register, improvement records, lease history, ownership shares, residence evidence, mortgage balance, estimated sale expenses, and non-resident withholding analysis. Obtain a base and downside net-proceeds statement before setting the minimum acceptable price.
The correct exit price is informed by after-tax and after-debt cash, not by comparing only sale price with original price.
Primary sources
- National Tax Agency — Long-term real-estate capital gains: https://www.nta.go.jp/taxes/shiraberu/taxanswer/joto/3208.htm
- National Tax Agency — Withholding on purchase from a non-resident seller: https://www.nta.go.jp/taxes/shiraberu/taxanswer/gensen/2879.htm
- National Tax Agency — Real-estate rental income: https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1370.htm
- Ministry of Justice — Inheritance registration portal: https://www.moj.go.jp/MINJI/minji05_00435.html
Reviewed against the linked sources on 23 August 2026. Current professional calculation must use the taxpayer's full acquisition and use history.
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