The cash loophole from the 1% home loan income tax deduction is about to be closed as the government looks to revise the percentage down next year.

The current scheme allows home loan borrowers to subtract up to 1% of the balance of the mortgage from their income tax each year for 10 ~ 13 years following purchase. The annual limit is capped at 400,000 Yen. 

With interest rates at record lows, home buyers have been able to obtain variable-rate mortgages as low as 0.4 ~ 0.5% in some cases, resulting in the tax deduction exceeding their annual interest payment. An investigation by the Board of Audit in 2019 found that as many as 80% of the borrowers were receiving a tax deduction greater than the interest they were paying. 

The Ministry of Finance proposed that the tax deduction be limited to the amount of interest paid by the borrower, but the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) is preferring a flat rate of possibly 0.7%. 

13 year deduction may be extended to 15 years

In potentially good news, the MLIT is aiming to extend the 13-year deduction to continue for a term of 15 years or more. 

Ordinarily the home loan income tax deduction only applies for the first 10 years of the loan, but a special 3-year extension may be granted for home purchases where the 10% consumption tax rate applied to the sale price. Not all real estate transactions are subject to consumption tax, so not all buyers are eligible for this extension. 

Extending the term to 15 years will be welcomed by developers and professional real estate flippers, both of whom must apply consumption tax to their transactions.

Jiji Press, November 18, 2021.
The Yomiuri Shimbun, November 18, 2021.