Mortgage deduction

Mortgage deduction

2019-11-16

Housing in Japan

What is mortgage deduction?

Simply speaking, at the end of the year, a certain amount of your mortgage balance is deducted from your income tax and residence tax.

The deducted amount depends on the year of purchase. However, you continue to benefit for several years, so you should. In the first year, a tax return must be filed with the necessary documents. (From the second year, if you are a company employee, the company will do it for you.) It is a system that you should take advantage of, although the paperwork takes time and effort.
The government must have introduced this system to promote the purchase of housing and as an economic measure.

 

Overview

If you take a mortgage loan to purchase a new or old home, your income tax and, in some cases, the resident tax too will be reduced for 10 years from when you move in if you meet certain requirements.

【Income tax mortgage deduction =  a certain percentage of your year-end mortgage balance】

This “certain percentage” is different for each year of residence.
Please see the National Tax Agency website for exact figures.

In addition to purchasing new housing, this system can also be applied to construction costs that exceed one million yen for the home where you live.

However, you need to have borrowed the money from a financial institution, etc. with a repayment period of 10 years or more, for the purchase of a home, extension or renovation of your home. The system does not apply to money borrowed from relatives, etc.

 

How to use the system?

In order to receive the mortgage deductions explained above, you need to file a final tax return by yourself from February 16 to March 15 of the year after moving in.
After that, a refund application can be submitted for a period of 5 years from January 1 of that first year regardless of whether or not you have filed a final tax return, so even if you have forgotten to do this for five years, you can still get a refund.

For the final tax return, you will need to fill in specific documents, as well as submit other materials such as a copy of your resident card and certificate of registration, etc. I suggest confirming what you need before filing the final tax return.

 

Other notes

As for this mortgage deduction, you might be curious to know how much money comes back.

This is only an estimate, but I think it is about 1% of the mortgage loan remaining at the end of the year.

However, please be aware that the amount depends on the income tax you pay. Even if the deduction limit is 500,000 yen, if your actual income tax is 100,000 yen, the refund limit will be 100,000 yen.

 

【Message from the author】

I talked about mortgage deduction today.

The amount of money is usually large, so it is best to consult with a tax accountant if necessary.

However, there is no doubt that this is a beneficial system when buying a house, so if you have time, try to find out more about it and use it as a step for when planning to buy your dream home.

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