A system that allows a certain percentage of the year-end mortgage balance to be deducted from income tax when purchasing or renovating a home using a housing loan. Officially called the "Special Deduction for Housing Loans." Following the 2022 tax reform, the deduction rate was set at 0.7% with a maximum deduction period of 13 years for new construction. It is one of the largest tax incentives supporting home acquisition.
Eligibility Requirements and Deduction Amount Calculation
The mortgage deduction has multiple eligibility requirements. The main ones are: the loan repayment period must be 10 years or more, you must move in within 6 months of acquisition and reside there through year-end, your total income must be 20 million yen or less, and the floor area must be 50 square meters or more. For used homes, additional requirements regarding building age apply (constructed after 1982, or obtaining an earthquake resistance compliance certificate).
The deduction amount is calculated as "year-end loan balance x 0.7%." The borrowing limit varies by housing type: 50 million yen for certified long-life quality housing and certified low-carbon housing, 45 million yen for ZEH-standard energy-efficient housing, 40 million yen for energy-efficiency standard compliant housing, and 30 million yen for other new construction. For example, with a year-end balance of 30 million yen, the deduction is 210,000 yen. Any amount that cannot be deducted from income tax can be deducted from resident tax up to a maximum of 97,500 yen.
Techniques for Combining Mortgage Deduction with Furusato Nouzei
The mortgage deduction and Furusato Nouzei can be used together, but without understanding the deduction application order, you may end up losing out. The mortgage deduction is applied first as a tax credit from income tax, with any excess carrying over to resident tax. The Furusato Nouzei deduction consists of an income tax donation deduction (income deduction) and a resident tax credit, so if the mortgage deduction reduces income tax to zero, the income tax portion of the Furusato Nouzei benefit becomes diminished.
As a practical countermeasure, using the One-Stop Special System ensures the entire Furusato Nouzei deduction is applied to resident tax, preserving the income tax allowance for the mortgage deduction. However, since a final tax return is mandatory in the first year of the mortgage deduction, the One-Stop Special System cannot be used that year. The optimal strategy is to file both through the final tax return in the first year, then switch to the One-Stop Special System from the second year onward. In either case, verifying the combined deduction ceiling in advance using a simulator is essential.
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