Japan Rental Income Tax Guide 2026 — 不動産所得 (Actual Cost Deduction)

Overview — How Rental Income Is Taxed

Rental income from Japanese real estate is classified as real estate income (不動産所得) and taxed as part of your total income:

👉 Tax Classification: Real estate income (不動産所得) is one of 10 income categories under Japanese tax law. It is aggregated with your other income (employment, business, etc.) and taxed at progressive national rates (5–45%) plus 10% inhabitant tax (住民税).

👉 Taxable Rental Income: Gross rental receipts minus allowable deductions = net real estate income. This net amount is added to your other income for the year. If net income is positive, it increases your total taxable income. If negative (a loss), it reduces your total taxable income (except for certain limitations).

👉 No Separate Rate: Unlike capital gains from real estate sales (譲渡所得 — taxed at a flat ~20% for long-term holdings), rental income is NOT subject to a separate flat rate. It is taxed as ordinary income at progressive rates up to ~55% effective.

👉 Reporting: Rental income is reported on the Schedule for Real Estate Income (不動産所得の内訳書) attached to your annual tax return (確定申告). You must report each property separately, listing gross rent, expenses, and net income.

Deductible Expenses — Actual Cost Basis

Japan uses an actual cost deduction system (not a simplified or standard deduction). All legitimate expenses for generating and maintaining rental income are deductible:

👉 Deductible Expenses Include:

• Fixed Asset Tax (固定資産税): The annual property tax paid to the municipal government is fully deductible. This is typically one of the largest deductions.
• Depreciation (減価償却費): The building (not the land) can be depreciated over its useful life (determined by construction material and use). This is a non-cash deduction that significantly reduces taxable income.
• Mortgage Interest: Interest on loans used to purchase or improve the rental property is fully deductible. Principal repayment (amortization) is NOT deductible.
• Repairs and Maintenance: Painting, plumbing, electrical repairs, appliance replacement, cleaning between tenants. Capital improvements (増改築) must be depreciated, not fully deducted in one year.
• Management Fees: Fees paid to a property management company (typically 5–10% of monthly rent).
• Insurance: Fire insurance, earthquake insurance, and liability insurance premiums.
• Utilities: Water, electricity, gas, and internet if paid by the landlord (common for multi-tenant buildings).
• Property Management Travel: Transportation costs for visiting the property (limited to actual expenses or a per-kilometer rate).
• Professional Fees: Fees paid to a tax accountant (税理士), attorney (弁護士), or real estate agent related to the rental activity.
• Association Fees: Condominium management fees and reserve fund contributions for apartment buildings (管理費・修繕積立金).

Depreciation — 減価償却費

Depreciation is one of the most important tax deductions for rental property owners:

👉 What Can Be Depreciated: Only the building structure (建物) can be depreciated. Land (土地) cannot be depreciated — it retains its value for tax purposes. You must separate the purchase price into land and building components based on the contract or assessed values.

👉 Useful Lives (法定耐用年数): The NTA prescribes standard useful lives based on construction materials:

• Reinforced concrete (RC) apartment building: 47 years
• Steel-frame apartment building: 34 years (heavy) to 27 years (light)
• Wooden apartment building: 22 years
• Reinforced concrete commercial building: 39 years
• Wooden house (single-family): 22 years

👉 Depreciation Method: Most rental properties use the declining-balance method (定率法). For buildings acquired after April 1, 2007, the straight-line method (定額法) is required by law. For used buildings, the useful life can be calculated as: (new useful life × 0.2) + (used years × 0.8 × 0.2) = remaining useful life.

👉 Calculation Example: A wooden apartment building (22-year useful life) purchased for JPY 30M (excluding land). Straight-line depreciation: JPY 30M / 22 = approximately JPY 1.36M per year. Over 22 years, the total deduction is JPY 30M (the full building cost).

👉 Depreciation Recapture: When you sell the property, any depreciation claimed reduces your cost basis for capital gains calculation. This means you pay tax on the depreciation when you sell (at the capital gains rate, not the rental income rate).

Fixed Asset Tax — 固定資産税

The annual fixed asset tax (固定資産税) is a key deduction for rental property owners:

👉 Rate: 1.4% of the assessed value of the land and building (assessed by the municipal government every 3 years). Additional municipal tax (都市計画税) of approximately 0.3% applies in urbanized areas. Total: approximately 1.7% of assessed value.

👉 Deductibility: The full amount of fixed asset tax paid is deductible as an expense against rental income. It is one of the largest cash deductions for property owners. The tax bill is typically issued in April–June and can be paid in installments (usually 4 installments).

👉 Acquisition Tax: The one-time real estate acquisition tax (不動産取得税) is not deductible as an expense but is added to the cost basis of the property (depreciable for buildings, not for land).

Mortgage Interest Deduction

Interest on loans for rental property is fully deductible:

👉 Deductible Interest: Interest on loans used to acquire, improve, or refinance the rental property. The loan must be in the name of the property owner. Interest on construction loans during the construction period is also deductible.

👉 Not Deductible: Principal repayment (amortization) is not deductible. It is a capital repayment, not an expense.

👉 Refinancing: If you refinance the property loan, interest on the new loan is deductible to the extent the proceeds were used for the rental property. If any portion was used for personal purposes, that portion is not deductible against rental income.

👉 Interest Allocation: If a loan is secured by multiple properties (or includes a personal residence), you must allocate the interest proportionally based on the loan amount attributable to the rental property.

Loss Rules and Aggregate Taxation

Rental losses can offset other income, with some limitations:

👉 Loss Offsets Other Income: If your rental property generates a net loss (expenses exceed rental income), the loss reduces your total taxable income from other sources (salary, business, etc.). This is a significant advantage of real estate investment — depreciation and interest deductions can create paper losses that shelter other income.

👉 Limitation for Large Losses: If rental losses exceed JPY 200,000 per year, the excess loss may be restricted if the property generates net rental income on a cash-flow basis (i.e., the loss is primarily from depreciation). This "passive loss limitation" (不動産所得の損益通算の制限) was tightened significantly — consult a tax professional.

👉 Loss Carry-Forward: If total net losses exceed your total income for the year, the excess can be carried forward for up to 3 years (for Blue Return filers) to offset future rental income or other income.

Non-Resident Rental Income

If you own Japanese rental property but live abroad, special rules apply:

👉 Withholding Tax: Non-resident landlords are subject to 20.42% withholding tax on gross rental income. The tenant (or property manager) must withhold this tax and remit it to the NTA. No deductions are allowed at the withholding stage.

👉 Final Return: Non-residents can file a final tax return (確定申告) to claim actual deductions and potentially recover over-withheld tax. This requires appointing a tax representative (納税管理人) in Japan and filing within the standard period (Feb 16–Mar 15).

👉 Tax Representative: You must appoint a tax representative to handle filings and tax office communications. This is typically a tax accountant (税理士) or a trusted individual with a Japanese address.

👉 Treaty Relief: Most tax treaties provide that real estate income is taxable in the country where the property is located (Japan). You may claim a foreign tax credit in your country of residence for Japanese tax paid on the rental income.

FAQ

How is rental income taxed in Japan?

Rental income is classified as real estate income (不動産所得) and taxed at progressive rates (5–45% national + 10% inhabitant = up to ~55%). Actual expenses are deductible. There is no separate flat rate for rental income.

What expenses can I deduct from rental income?

Fixed asset tax, depreciation (building only), mortgage interest, repairs, management fees, insurance, utilities (if paid by landlord), association fees, and professional fees (tax accountant, attorney). All actual costs are deductible.

Can I depreciate the building?

Yes. The building can be depreciated over its statutory useful life (e.g., 47 years for RC apartment, 22 years for wooden). Land cannot be depreciated. Depreciation is a non-cash deduction that can create tax-efficient losses.

Is fixed asset tax deductible?

Yes, the full amount of fixed asset tax (固定資産税) and city planning tax (都市計画税) paid on the rental property is deductible against rental income. This is typically one of the largest cash deductions.

Can I deduct mortgage interest?

Yes. Interest on loans used to purchase or improve the rental property is fully deductible. Principal repayment (amortization) is NOT deductible. Refinancing interest is also deductible to the extent proceeds were used for the property.

Can rental losses offset my salary income?

Yes. Net rental losses (from depreciation, interest, etc.) can offset other income including salary. This is a key tax advantage of real estate investment. However, large losses may be restricted under passive loss rules.

What if I live outside Japan?

Non-resident landlords face 20.42% withholding on gross rent. You can file a final return to claim deductions and recover over-withheld tax. A tax representative in Japan is required for filing.

Do I need to report rental income on my tax return?

Yes. All rental income must be reported on your annual tax return (確定申告) using the Schedule for Real Estate Income (不動産所得の内訳書). This applies whether the property is in Japan or abroad.