Many people are unsure whether they need to file a tax return when they sell real estate.Whether a tax return is required depends not only on whether your capital gain is positive or negative, but also on whether you use special provisions or deductions.This article outlines the key points that investors and prospective sellers should understand.
When is a tax return not required?
The formula for calculating capital gains is as follows.
Capital gain = transfer proceeds - (acquisition cost + transfer expenses)
If this calculation results in a negative amount (a capital loss), filing a tax return is generally not required.However, there are exceptions if you use a special provision, so caution is required.
In what cases is a tax return required?
If you use the JPY 30 million special deduction
The JPY 30 million special deduction is a special provision that allows up to JPY 30 million to be deducted from capital gains when selling an owner-occupied property.Whether the calculation results in a gain or a loss, you must file a tax return if you use this special provision. To qualify, you must satisfy six requirements, including that the buyer is not a related party such as a relative.
If you use a special provision for loss offsetting or loss carryforward
Even if you incur a capital loss, you may use two special provisions.
- Special provision for loss offsetting and carryforward of capital losses arising from replacement of an owner-occupied property: You can offset the loss against employment income and other income, and carry it forward for three years
- Special provision for loss offsetting and carryforward of capital losses relating to an owner-occupied property: Similar loss offsetting is available without requiring a replacement purchase
If you use these special provisions, you must file a tax return even if you have a loss.Failure to file may result in non-filing penalties and delinquent tax, so care is required.
What documents are required for filing a tax return?
1. Statement of capital gains details
This document records the location of the sold property, how it was used, brokerage fees, and similar details.It can be downloaded from the National Tax Agency website.
2. Final tax return Form B (first and second pages)
For a real estate sale,Form B is required. Documents related to social insurance premium deductions and similar items are submitted at the same time.
3. Separate taxation return form (third page)
This form is used to report separate taxation on capital gains. It is easier to prepare after completing items 1 and 2.
4. Certificate of registered matters
It can be obtained from the Legal Affairs Bureau.For land, confirm the lot number; for a building, confirm the building number before obtaining it to make the process smoother.
5. Copies of the sale and purchase agreement and receipts
You need the sale and purchase agreements from both the acquisition and the sale, as well as receipts for related expenses. If you cannot find the purchase agreement from when you acquired the property, you may use 5% of the transfer price as the deemed acquisition cost (however, this may increase the taxable amount).
Related reading
- What is the fixed asset tax assessed value? Explaining how to calculate it, how to check it, and its impact on investment
- Is real estate investment difficult because of a lack of overall capability? Explaining the three barriers of tax, legal matters, and construction
Frequently Asked Questions (FAQ)
Q. What is the deadline for filing a tax return?
As a general rule, it is from February 16 to March 15 of the year following the sale. If you use e-Tax (electronic filing), you can submit from home, and any refund may also be processed more quickly.
Q. Can the JPY 30 million special deduction be used every year?
Because this special provision applies to the sale of a home you lived in, it cannot be used every year. One of the conditions is that you must not have used the same provision or the replacement-property provision in the previous year or the year before the sale.
Q. Is a tax return also required if I sell inherited real estate?
A tax return is required if a capital gain arises from the sale of inherited real estate as well. However, because the acquisition cost at inheritance carries over from the deceased, it is important to have documents that prove the acquisition cost.
Q. Is filing still required if I have no other income in the year I sold the real estate?
If you have a capital gain, filing a tax return is required. Even if your taxable income becomes zero because of a special deduction or similar measure, filing may still be necessary to apply the special provision. Consulting a tax accountant is recommended.
