When considering the purchase of a used condominium, many people have probably heard that “consumption tax does not apply.” In practice, however, the treatment of consumption tax differs depending on whether the seller is an individual or a business entity. This article explains how consumption tax works when buying a used condominium and how it affects the mortgage tax deduction.
Under what conditions does consumption tax not apply to a used condominium?
Consumption tax is a tax imposed on goods and services provided by businesses. If the seller of a used condominium is an individual (a non-business operator), that seller does not qualify as a taxable business, so consumption tax does not arise. On the other hand, if the seller is a business entity such as a real estate company, consumption tax (10%) applies to the building portion (land is non-taxable).
Most used condominiums are sold by individual sellers
More than 80% of used condominiums traded through real estate brokers are sold by individual sellers. Even on listing sites or through a real estate company, if the transaction type is shown as “brokerage” or “intermediation,” there is a high likelihood that the seller is an individual, and consumption tax will not apply. However, consumption tax does apply to the brokerage fee (capped at 3% of the sale price plus JPY 60,000).
What are the advantages and disadvantages when consumption tax applies and when it does not?
Advantage of tax-exempt treatment (individual seller): lower purchase costs
For example, if a used condominium costs JPY 25 million and the seller is a business entity, roughly JPY 2.5 million in consumption tax may arise (excluding land; the detailed calculation is complex, so this is only an estimate). If the seller is an individual, consumption tax is zero, which can substantially reduce the total purchase cost.
Disadvantage of tax-exempt treatment: the mortgage deduction cap is cut in half
For properties on which consumption tax does not apply, the maximum annual mortgage deduction is reduced from JPY 400,000 to JPY 200,000 (maximum total deduction over 10 years: JPY 4 million → JPY 2 million). For properties subject to 10% consumption tax, there is also the benefit of an extended deduction period of 13 years. If you place significant weight on the mortgage deduction amount, a property sold by a business entity with consumption tax included may be more advantageous in some cases.
How can you tell whether the seller is an individual or a business entity?
Property listings on real estate portals include the “transaction type”:
- “Seller”：A real estate company (business entity) is the seller → consumption tax applies
- “Brokerage” “Intermediation” “General”：High likelihood of an individual seller → no consumption tax
Because portal sites do not allow you to determine this with certainty, it is important to contact the real estate company directly and confirm the seller’s status.
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Frequently Asked Questions (FAQ)
Q. Does consumption tax also apply to the land portion of a used condominium?
Land is outside the scope of taxation, so even if the seller is a business entity, consumption tax does not apply to the land price. Consumption tax is imposed only on the building portion.
Q. If I buy from an individual seller, does consumption tax still apply to the brokerage fee?
Yes, it does. Consumption tax arises as consideration for the service provided by the real estate company (business entity) that handled the brokerage.
Q. If I want a larger mortgage deduction, is a property sold by a business entity better?
Not necessarily. Even if your payment increases because of consumption tax, whether you can recover that amount through the 13-year deduction depends on the loan balance, tax rate, and property price. We recommend consulting a financial planner.
Q. How can I find out the price of the building itself?
If the seller is a business entity, consumption tax is included in the sale price, so you can calculate the building price by working backward using “consumption tax amount ÷ 10%.” If the seller is an individual, consumption tax is not included, so that reverse calculation is not possible.
