Tax Exemptions for Home Sales | Understanding the 30-Million-Yen Exemption and Loss Carryforward Deductions

The Importance of Correctly Understanding Real Estate Sale Taxes

When you sell your home, capital gains tax and resident tax are levied on the sale proceeds. The tax rate depends on how long you've owned the property: for "long-term capital gains" (owned for over 5 years), the combined rate is 20.315% (income tax 15% + reconstruction special tax 0.315% + resident tax 5%), while for "short-term capital gains" (5 years or less), the rate is as high as 39.63%.

However, there are multiple tax incentives available for residential property sales, and by using them correctly, you can significantly reduce your tax burden. For those considering selling their homes in Sendai, we've organized and explained the major exemptions.

Tax Exemption #1: The 30-Million-Yen Exemption for Residential Property Sales

The Most Commonly Used Basic Exemption

The "30-million-yen exemption for residential property sales" allows you to deduct up to 30 million yen from your capital gains when selling your home. For example, if a home you purchased for 35 million yen sells for 48 million yen, the capital gain would be 13 million yen, but this exemption would eliminate all tax liability.

Eligibility Requirements

After Moving: If you transfer for work from Sendai, you can generally still claim the exemption for your former residence as long as you sell it within 3 years of the move. However, note that if the property was rented to a third party until the sale, you cannot claim the exemption.

Tax Filing Is Required

This exemption is not a non-filing benefit. Even if your tax is zero, you must file a tax return to claim the exemption. The filing deadline is between February 16 and March 15 of the following year.

Tax Exemption #2: Reduced Tax Rate for Properties Owned 10+ Years

Can Be Combined with the 30-Million-Yen Exemption

If you've owned your home for 10 years or more as of January 1 of the year of sale, a reduced tax rate applies to the remaining amount after the 30-million-yen exemption.

Since this is about 6% lower than the standard long-term capital gains rate of 20.315%, this exemption is particularly effective when sale proceeds exceed 30 million yen. In Sendai, it can be used when selling long-held single-family homes or condominiums in popular areas like Aoba and Taihaku wards.

Tax Exemption #3: Replacement Property Exemption for Specific Residential Property

A Deferral Measure When Selling and Buying Simultaneously

When "trading up"—selling one home to buy another—the "replacement property exemption" allows you to defer taxation on capital gains under certain conditions.

Main Requirements:

Importantly, this exemption "defers" rather than "eliminates" the tax. When you eventually sell the new property, today's capital gains will be added to that calculation. Since this cannot be used simultaneously with the 30-million-yen exemption, you'll need to simulate which option is more advantageous.

Tax Exemption #4: Loss Carryforward Deduction

For When You Sell Your Home at a Loss

If you sell your home at a loss during a sale or trade-up, and meet certain conditions, you can deduct that loss from other income for 3 years (loss carryover and carryforward deductions).

Two Scenarios:

In Sendai, there are examples from properties affected by the 2011 Great East Japan Earthquake where losses were realized on sales, as well as cases in suburban areas where properties depreciated. This exemption was utilized in those situations.

Main Requirements (for replacement loss):

Important Notes on Using These Exemptions

Multiple Exemptions May Be Available

The 30-million-yen exemption and the 10-year reduced rate can be used together. However, the 30-million-yen exemption and the replacement property exemption cannot be used simultaneously. Which is advantageous depends on your sale price, purchase price, and the new property's details, so we recommend consulting with a tax accountant or real estate professional.

Ownership Period Calculation Is Based on Acquisition Date

Many exemptions have "owned for X years" requirements. This period is calculated using January 1 of the sale year as the reference point. For example, if you purchased a property in March 2020 and sold it in December 2025, your ownership period as of January 1, 2025 would be 4 years 9 months, which doesn't meet the "5-year" requirement. Since the sale timing directly affects your tax amount, it's sometimes an effective strategy to plan your sale across year boundaries.

Prepare Documents Early

To claim exemptions, you'll need documents like the "transfer price certificate," "sales contract," original purchase contracts and receipts, and residence registration copies. If documents are missing, the exemptions may not be approved, so prepare them early.

M-Assets supports Sendai area real estate sales with everything from sale price forecasts to tax simulation guidance provided by expert staff. Please feel free to contact us for a free valuation.