Expenses are the key to saving tax.According to the website of the National Tax Agency, the expenses that can be recorded as expenses are “out of the expenses directly necessary to obtain real estate income, those that can be clearly distinguished from household expenses”.
The main expenses for real estate are depreciation, management, property tax, city planning tax, fire insurance premiums, earthquake insurance premiums, reserve funds for repairs, and interest on loans.By recording these as expenses, it will lead to tax savings on inhabitant tax and income tax.In particular, the depreciation cost is a large amount because it takes many years, so it is a point that cannot be overlooked.
table of contents
- 1 Resident tax and income tax can be reduced by depreciation of real estate investment
- 2 How to reduce inheritance tax and gift tax in real estate investment
- 3 Keep in mind that real estate investments aren't always tax-saving.
- 4 It is dangerous to be conscious only of tax saving.Debt cross to watch out for in real estate investment
- 5 Summary
Resident tax and income tax can be reduced by depreciation of real estate investment
Income tax is applied to the remaining taxable income after deducting income deductions from all income for one year.
In the case of salaried workers, taxes are deducted from their salaries.If you have a deficit due to real estate investment, you can get a refund of the deficit as overpaid tax (total profit and loss).Inhabitant tax is linked to income, so in such cases, you can expect a tax reduction effect by filing a tax return.
Unlike income tax paid to the national government, resident tax is paid to the local government in the area of residence and is calculated in the municipality where the tax return is sent from the tax office.By the way, there are two types of taxation: income percent taxed according to the previous year's income and per capita rate regardless of income, and they are calculated together.
When purchasing a property, the expenses often exceed the real estate income, so the negative real estate income and the positive salary income are offset, resulting in tax savings.
This is called total profit and loss. For example, if your salary income was 800 million yen, but your expenses in the first year were 150 million yen, tax would be calculated against your annual income of 800 million yen. You will be treated.This will result in less money being collected.
To explain it in a little more detail, let's say that the rent income is 150 million yen, and the actual expenses such as management fees and property taxes are 100 million yen.
Then, 60 yen will be deducted as depreciation (*).At first glance, it looks like a deficit of 10 yen, but this is a ledger and is different from the actual flow of money.The deficit of 10 yen on the books can be combined with employment income, so it is expected to be lower than the actual income as a result.As a flow of money, it is 100 million yen to 60 yen, so even though 40 yen remains at hand, it is calculated that income tax and resident tax can be saved because it is expected to be a low income.
*Depreciation: This means that the value of a building, its ancillary facilities, fixtures and fittings, etc. decreases over time from the time it is newly built.Do not record expenses at the time of purchase, divide by useful life and record during the period
Related article:Tax and calculation method on rental income earned from real estate investment
How to reduce inheritance tax and gift tax in real estate investment
Inheritance tax/gift tax is a proportional tax rate of 10% to 55% of the real estate appraisal value according to the property appraisal basic notification, depending on the amount of the appraisal value.
In the case of inheritance, tax is calculated on the assessed value of the property, and if 5000 million yen in cash is inherited, the assessed value of the property will be 5000 million yen.However, when inheriting as real estate, the land is evaluated based on the land price, and the building is based on the fixed asset tax evaluation value. .
In other words, the amount lower than the original value is the inheritance tax assessment value, and the division tax is possible.In addition, since the rental property is a land for rent, the inheritance tax assessment value is further discounted by calculating the leasehold right ratio and the leasehold right ratio.It is because of these points that real estate investment can reduce inheritance tax.
Real estate worth 5000 million yen is valued at around 2000 to 3000 million yen, which is why it is said that there is a tax saving effect when inheriting or gifting real estate of the same value.Even if you leave the same asset, if you keep it as real estate, even if it becomes a deficit, you can save income tax and resident tax, and when inheritance occurs, the inheritance tax will be more profitable than cash or financial products. You can save tax.This tax saving effect is one of the attractions of real estate investment.
Related article:Will real estate investment for inheritance tax increase the taxable amount?Understand how taxes work so you don't fail
Related article:Taxes and Tax Savings When Giving Real Estate While Living
Keep in mind that real estate investments aren't always tax-saving.
The point of tax saving in real estate investment is to reduce the amount of tax payment such as income tax by recording negative expenses, but if expenses decrease, the effect of tax saving will naturally fade.
One of the factors that reduce expenses is the interest when using the equal principal and interest repayment on real estate loans.The interest is high at the beginning and decreases year by year.
The other is depreciation of housing equipment.Plumbing equipment, water heaters, and air conditioners have a shorter useful life than the building itself, so after that, it is no longer possible to record expenses.Also, if you buy second hand, the useful life will be even shorter, so you need to be careful when considering it as a tax saving measure.Since depreciation can be recorded up to the statutory useful life, it means that the tax saving effect by recording depreciation can hardly be expected after the statutory useful life.
For reference, the service life of the building is listed below.
- Structure/Use: Wooden/synthetic resin construction/Details: For stores/residential use/Durability: 22 years
- Structure/Use: Timber frame mortar construction/Details: For shops/residential use/Durable life: 20 years
- Structure/Use: Steel-framed reinforced concrete construction, reinforced concrete construction/Details: For housing/Durable life: 47 years
- Structure/Use: Brick, stone, block/Details: For shops, houses, restaurants/Service life: 38 years
- Structure/Application: Metal Construction/Details: For Stores and Residential Use (Over 4 mm)/Durable Life: 34 Years
- Structure/Use: Metal construction/Details: For shops and houses (those exceeding 3 mm and 4 mm or less)/Durable life: 27 years
- Structure/Application: Metal/Details: For shops and houses (3 mm or less)/Service life: 19 years
Related article:What kind of property is suitable for real estate investment?Wooden, steel, lightweight steel, RC?Know the types of buildings
It is dangerous to be conscious only of tax saving.Debt cross to watch out for in real estate investment
Depreciation cannot be recorded forever, while the loan repayment amount decreases year by year.When you realize that you are spending your time without thinking about anything, the depreciation expense may exceed the principal repayment amount of the loan.
This is a phenomenon in which income tax increases and the amount of money remaining at hand decreases because it is in the black on the books.This is called a debt cross, and it is not a good situation for real estate investment.
It is important to calculate and simulate in advance rental income, depreciation, loan repayment, and other expenses that can be recorded so as not to become a debt cross.In addition, I was so conscious of tax saving that I inadvertently purchased a property with a low occupancy rate without investigating the surrounding environment of the property. Make sure you have a solid business plan in place so that you don't end up in a situation that doesn't exist.
In the first place, it is important to think that if you make a profit from real estate investment, you have to pay the determined tax, and then get advice from experts and manage it.
Related article:What is an advantageous business plan to make a loan in real estate investment?From creation method to agency request
Summary
- Resident tax and income tax can be saved by using depreciation
- By converting cash into real estate, the amount lower than the original value will be the inheritance tax assessed value, making it possible to reduce inheritance tax and gift tax.
- If expenses are reduced, the tax savings will be reduced.Note that tax savings cannot last forever.
- It is important to calculate well in advance and set up a simulation so as not to become a dead cross
At Rich Road Co., Ltd., we will consistently support all aspects of investment real estate, from complete beginners to experienced people, from a wide range of real estate selection, loan consultations, post-purchase management, and renovations.
