13-year home loan tax deduction deadline is November 30

With the deadline to apply for the 13-year home loan income tax deduction coming this November, should buyers rush in to purchase or wait to see if it is extended? This scheme allows homebuyers to deduct a percentage of their home loan balance from their income taxes each year for 10 ~ 13 years (the 3-year extension is the one with the looming deadline).

Under this scheme, up to 1% of the remaining home loan balance can be deducted from the borrower’s income tax each year for the first 10 years following their home purchase. A special three-year extension may be granted for home purchases where the 10% consumption tax rate was applied to the sale price. Not all purchases are subject to consumption tax, so not all buyers will be eligible.

The maximum annual deduction is capped at 400,000 Yen for the first 10 years, providing a maximum income tax deduction of up to 4,000,000 Yen over the first 10 years. The calculation for the three-year extension may be lower depending on the lowest calculation that applies (it might be lower than the 400,000 Yen-a-year limit). The general estimate is that the total 10+3 year deduction can amount to around 4,800,000 Yen.  

Properties designated as long-term superior housing and low-carbon housing may be eligible for a maximum deduction of 500,000 Yen a year (for purchases until December 2021).

With joint borrowers, say a married couple using a ‘pair loan’, each borrower can apply for the deduction based on their individual loan amount.

Is there a need to panic before the purchase contract deadline expires in two months? The original deadline was set to end in November 2020, but extended for a further 12 months. A member of the Tokyo Kantei Market Research team says there is a good chance the government could extend it for another year as it helps to support the economic recovery amidst the pandemic. In fact, on September 27, Kyoto News reported that the government is considering extending the deadline. Final details are expected to be decided by the end of the year.

Rather than make a hasty decision swayed by a potential tax deduction, buyers should consider various factors before making a purchase. Those can include current and expected future personal income, life plans, interest rates, and, perhaps more importantly, whether they have found a property that ticks most of their boxes. 

You can find more information about the criteria and application process for the home loan income tax deduction here (in Japanese language):

https://sumai-kyufu.jp/outline/ju_loan/index.html

Sources:
The Nikkei Shimbun, August 27, 2021.
World Business Satellite, September 21, 2021.
Kyodo News, September 27, 2021.

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