It is widely said that “no consumption tax applies” when buying a used home, but strictly speaking, it depends on whether the seller is an individual or a business operator. Incorporation can also be an effective option if you want to maximize tax efficiency. This article explains how consumption tax works for used homes and the tax-saving benefits of incorporating.
Is it true that “used homes are not subject to consumption tax”?
If the seller is an individual, no consumption tax is charged on the building. On the other hand, if the seller is a business operator such as a real estate company, 10% consumption tax applies to the building portion (land is always non-taxable). In other words, “used home = no consumption tax” is not an accurate rule; the seller’s status is the key factor.
If the seller is an individual: no consumption tax
Because an individual seller does not qualify as a taxable business operator, no consumption tax arises on the building. However, consumption tax does apply to the brokerage fee (for a sale price over 4 million yen: the maximum fee is “sale price × 3% + 60,000 yen + consumption tax”).
If the seller is a business operator: consumption tax applies to the building
If the seller is a business operator, consumption tax is added to the building price. Since the land portion is non-taxable, you can work backward from the consumption tax amount to identify the net building price (consumption tax amount ÷ 10% = net building price).
How can you identify the seller?
Check the “transaction type” on real estate portal sites:
- “Seller”: high likelihood that the seller is a business operator → consumption tax applies
- “Agent” or “Brokerage”: high likelihood that the seller is an individual → no consumption tax
Because you cannot determine this with certainty from a portal site alone, it is important to confirm directly with the real estate company.
Why should you consider incorporating if you want to reduce taxes?
Strong tax-saving effect
Compared with the maximum combined individual burden of income tax (5% to 45%) plus resident tax (10%), which can reach 55%, the effective corporate tax rate is roughly 20% to 30%, making it substantially lower. The range of deductible expenses also expands, including full insurance premiums and executive compensation, which is especially effective for high-income real estate owners.
Easier access to financing
Corporations generally have greater social credibility than individuals, which means they are more likely to pass financing reviews at financial institutions. Larger financing capacity also makes it easier to expand the scale of investment.
More diverse fundraising options
If you establish a stock company, equity crowdfunding can also become available, opening fundraising routes that individuals typically cannot use.
Longer loss carryforward period
For individuals filing blue returns, losses can generally be carried forward for up to 3 years, while corporations can carry losses forward for up to 10 years. This makes it possible to level out tax burdens over a longer period in years when losses occur.
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Frequently Asked Questions (FAQ)
Q. Are there cases where consumption tax applies even to a used home?
Yes. If the seller is a business operator such as a real estate company, 10% consumption tax applies to the building portion.
Q. How much are the initial costs of incorporating?
Establishing a stock company generally requires registration and license tax (minimum 150,000 yen), articles of incorporation notarization costs (about 50,000 yen), and other expenses, so the total is typically around 200,000 to 300,000 yen. After incorporation, you will also incur annual corporate resident tax on a per-capita basis, with a minimum of roughly 70,000 yen.
Q. When is a good time to switch from individual ownership to a corporation?
It is often said that the benefits of incorporation become more significant once taxable income exceeds around 9 million yen. We recommend making that decision in consultation with a tax accountant and a real estate professional.
Q. Does consumption tax apply to the brokerage fee no matter whom I buy from?
Yes. Because the brokerage fee is compensation paid to the intermediary real estate company, which is a business operator, consumption tax applies regardless of the seller’s status.
