When selling real estate acquired through inheritance or similar means, unexpected tax burdens can arise. As capital gains income increases, it can affect not only income tax and resident tax but also health insurance premiums, making advance tax planning important. One strategy attracting attention is a tax-saving strategy that uses Furusato Nozei. Because it is relatively easy to implement without meeting special conditions, it is also an effective method for real estate owners and investors.
What Is Capital Gains Income? How Taxes Work When Selling Real Estate
Capital gains income is the profit earned from selling real estate. Income tax and resident tax are imposed on this profit.
Types of Taxes Incurred When Selling Real Estate
The main taxes incurred when selling real estate are as follows.
- Income tax (capital gains tax): 39.63% for short-term gains (within 5 years), 20.315% for long-term gains (over 5 years)
- Resident tax: Taxed according to income (affects the following year)
- Special reconstruction income tax: 2.1% of the income tax amount
Sales of household furniture and clothing for daily use are non-taxable, but sales of assets such as real estate, stocks, and gold are taxable.
How to Calculate Capital Gains Income
The formula for calculating capital gains income is as follows.
Capital gains income = transfer price - (acquisition cost + transfer expenses) - special deduction
- Transfer price: sale proceeds + fixed asset tax settlement amount
- Acquisition cost: purchase price, real estate acquisition tax, registration and license tax, brokerage fee, surveying costs, etc.
- Transfer expenses: brokerage fee at sale, stamp tax, etc.
- Special deduction: amount deducted if eligibility requirements are met (such as the 30 million yen home sale deduction)
Can Furusato Nozei Reduce the Tax Burden on Capital Gains Income?
In conclusion, Furusato Nozei is also an effective tax-saving tool for capital gains income. However, it does not "reduce the tax amount itself"; rather, "the deduction limit increases, allowing you to make larger donations and thereby improving the effective tax-saving benefit."
If You Have Capital Gains Income, the Furusato Nozei Deduction Limit Increases
The Furusato Nozei deduction limit increases in proportion to taxable income. If your income rises temporarily due to a real estate sale, the full-deduction limit for Furusato Nozei in that year also rises.
Under separate self-assessment taxation (the taxation method for capital gains income), the tax amount is calculated separately from salary income and similar income. Because this post-separation income is also included in the Furusato Nozei deduction-limit calculation, you may be able to deduct a larger donation amount than in a normal year.
Comparison With Other Tax-Saving Methods
- 30 million yen special deduction for a primary residence: Up to 30 million yen deductible. Applies to owner-occupied residential property and has strict conditions
- 30 million yen deduction for vacant homes (inheritance): Subject to conditions such as within 3 years after inheritance and a sale price of 100 million yen or less
- Special rule for adding inheritance tax to acquisition cost: Available only if inheritance tax has been paid
- Furusato Nozei: Simply donate in the same year as the sale. The conditions are the simplest and the method is easy to implement
For detailed tax judgments, we recommend consulting a professional together with an appropriate valuation of the real estate sale price.
What Should You Watch Out for When Using Furusato Nozei?
Point 1: Make the donation in the same year as the real estate sale
With Furusato Nozei, you must make the donation in the same year that you sell the real estate. If you donate in a later year, you cannot use that year's increased deduction limit. Once the sale is decided, estimate the donation amount within the year and act early.
Point 2: The donation name must match the seller's name
To obtain the tax-saving effect, the name used for Furusato Nozei must match the name of the person who sold the real estate. Donations made under a family member's name do not provide the tax-saving benefit.
Point 3: Donations exceeding the deduction limit do not create tax savings
Any donation amount above the deduction limit will not be deducted and will simply become an expense. Simulate the deduction limit in advance and set an appropriate donation amount.
Point 4: Be aware of temporary income from gifts
Return gifts from Furusato Nozei are taxable as temporary income. If the total value of return gifts exceeds 500,000 yen per year, income tax will arise, so if you make large donations, you should also pay attention to the value of the gifts.
Related Reading
- Understand Your Home's Fair Value With AI Real Estate Appraisal | Tips on Timing and Selling at a Higher Price
- What Is Real Estate Buy-and-Resell? Explaining the Differences From Brokerage, Plus the Advantages and Disadvantages
- Avoid Risk With a Second Opinion on Real Estate Investment | How to Use Experts to Prevent Mistakes
Frequently Asked Questions (FAQ)
Can Furusato Nozei reduce capital gains tax itself?
It does not directly reduce the tax amount itself. Instead, the deduction limit increases, allowing a larger donation amount than before to be fully deducted. As a result, it helps protect disposable income and provides a practical tax-saving benefit through return gifts.
Is it legal to use Furusato Nozei after selling real estate?
Yes. It is a lawful tax-saving measure. Furusato Nozei is a donation to a local government and merely makes use of a tax incentive provided under the tax system. There is no issue if you follow the conditions and procedures.
Is a tax return required?
A capital gains tax return after selling real estate is mandatory. Even if you plan to use the one-stop exception for Furusato Nozei, a final tax return is required when you have capital gains income, so the correct approach is to report the Furusato Nozei donation deduction together with your final tax return.
How much can I contribute through Furusato Nozei?
The deduction limit varies depending on your income and family structure. We recommend using a simulator on a Furusato Nozei portal site or asking a tax accountant to estimate it. In years with capital gains income, the limit is often significantly higher than in ordinary years.
Is Furusato Nozei also effective when selling inherited real estate?
Yes. If you sell inherited real estate and capital gains income arises, that year's deduction limit increases, which enhances the tax-saving effect of Furusato Nozei. It is also worth considering in combination with the special rule for adding inheritance tax to acquisition cost.
