If you are buying a rental property in Japan as an investment, you’ll need to account for taxes alongside management fees, maintenance, financing costs, and other expenses.
These costs affect how much of the rent you keep, so it’s important to understand them before deciding whether a property is a worthwhile investment.
Regardless of where you live, if you generate income from a property you rent out in Japan, you are subject to Japanese income tax.
The amount you owe depends on your rental profit after allowable expenses and any other income taxable in Japan. Your tax residency also affects how you report the income and whether Japan withholds tax from your rental payments.
In this article, we’ll explain how rental income is taxed in Japan, which expenses you can deduct, and the filing and payment requirements for resident and nonresident property owners.
How Is Rental Income Taxed in Japan?
If you own a rental property in your own name, Japan generally treats the profit as real estate income, known as fudōsan shotoku.
You can calculate this by subtracting allowable expenses from your rental revenue:
Gross rental revenue − allowable expenses = real estate income.
Your rental revenue can include more than the monthly rent. It can include lease renewal fees, nonrefundable deposits, and payments you collect for common-area services.
A refundable security deposit generally does not count as income while you remain obligated to return it.
Property Owners Who Are Tax Residents of Japan
You are generally a Japanese tax resident if Japan is your main place of living, or you have maintained a residence in Japan continuously for at least one year.
If you are a tax resident, your rental profit is generally combined with employment income and other income subject to the same income-tax calculation.
You can apply personal deductions to determine your taxable income, which means your salary and other earnings can affect the tax you pay on your rental profit.
Japan’s national income-tax rates range from 5% to 45% across seven brackets. These apply to annual taxable income after deductions, not your gross rent or gross salary.
| Annual Taxable Income | National Income-Tax Rate |
|---|---|
| Under ¥1,950,000 | 5% |
| ¥1,950,000 to under ¥3,300,000 | 10% |
| ¥3,300,000 to under ¥6,950,000 | 20% |
| ¥6,950,000 to under ¥9,000,000 | 23% |
| ¥9,000,000 to under ¥18,000,000 | 33% |
| ¥18,000,000 to under ¥40,000,000 | 40% |
| ¥40,000,000 or more | 45% |
These are marginal rates, so entering a higher bracket does not mean all your income is taxed at that rate.
You may also owe local inhabitant tax, which has an income-based component generally totaling 10%, plus fixed annual charges.
It is calculated separately using the previous year’s income, and liability is generally determined by where you reside on January 1.
Property Owners Who Are Nonresidents
If you are a nonresident, the profit from renting out your Japanese property remains taxable in Japan.
Your final rental-income tax is generally calculated using the same progressive national income-tax rates, although the income and personal deductions included in your return differ from those of a resident.
Some rental payments to nonresident owners are also subject to 20.42% withholding on the gross rent, depending on who rents the property and how it is used. The payer deducts this tax before paying you, rather than waiting until you file your annual return.
However, 20.42% is not automatically your final tax rate. The withheld amount is credited against the tax calculated in your Japanese income-tax return.
Depending on your rental profit, allowable deductions, and other relevant income, you may receive a refund or need to pay additional tax.
What Expenses Can You Deduct From Rental Income?
You can deduct costs that are necessary to earn income from your rental property, provided you can separate them from personal expenses.
If you use part of the property yourself, you’ll need to allocate shared costs between rental and personal use rather than claim the full amount.
Operating Expenses and Financing Costs
The expenses you can generally deduct include:
- Management and letting costs: Property-management fees, advertising to find tenants, and letting-agent commissions related to renting out the property.
- Property taxes and insurance: Fixed asset tax and insurance premiums attributable to the rental property. Your personal income tax and inhabitant tax are not deductible rental expenses.
- Accounting and administrative costs: Bookkeeping, tax-return preparation, and other administrative services directly related to your rental activity. Only the rental-related portion qualifies if a service also covers personal matters.
If you have a loan on the property, the interest attributable to the rental activity is generally deductible, but repayments of the loan principal are not.
You therefore cannot subtract your entire mortgage payment when calculating rental profit. Use your lender’s repayment statement to separate the interest from the principal.
Some purchase-related taxes, including real estate acquisition tax and registration and license tax, can also qualify as expenses when they relate to a rental asset.
However, the brokerage fee paid to purchase the property generally becomes part of the acquisition cost of the land and building rather than an immediate deduction.
Repairs, Improvements, and Condominium Reserve Payments
You can generally deduct the cost of routine maintenance and repairs that restore the property to its existing condition.
For work that includes both repairs and improvements, ask the contractor for an itemized invoice. This makes it easier to identify which costs may qualify for an immediate deduction and which need to be depreciated.
If you own a condominium, you may also pay into the building’s repair reserve fund, known as shūzen tsumitatekin. These payments have specific rules. The default treatment is to deduct the relevant amount when the repairs are completed, but the National Tax Agency allows an earlier deduction when all its conditions are met.
Those conditions include an obligation to contribute under the management rules, no obligation for the association to refund the contributions, and restrictions ensuring the money is used only for future repairs.
The contribution must also be calculated reasonably under a long-term repair plan, based on each owner’s share. Check the condominium’s management rules and repair plan before treating every monthly contribution as deductible.
Building Depreciation
You cannot deduct the entire purchase price of a rental building in the year you buy it. Instead, depreciation spreads its qualifying acquisition cost over the applicable tax useful life, allowing you to claim a portion as an expense each year.
You can depreciate the building, but not the land, so you’ll need to separate the two parts of the purchase price.
The depreciation calculation depends on the asset and the applicable tax rules. Used buildings may qualify for a shorter depreciation period under the used-asset rules, although you should not assume that their remaining tax life is simply the standard useful life minus the building’s age.
If you previously lived in the property and later rent it out, the calculation must also account for the period of personal use. You do not start again with the full original cost as though the building were newly purchased for rental purposes.
Depreciation reduces the rental profit used for tax purposes without requiring a matching cash payment that year. This is one reason your taxable rental profit can differ from the cash left after paying the property’s bills and mortgage.
What Happens When Rental Expenses Exceed Income?
If your allowable expenses exceed your rental revenue, you may have a rental loss for tax purposes. Japan generally allows qualifying real estate losses to offset other income included in the relevant calculation, including employment income, but restrictions apply.
One important restriction concerns interest on borrowing used to acquire land. Although you can deduct that interest when calculating rental income, the portion of a rental loss attributable to it cannot offset other income.
Separate restrictions can also apply to properties held primarily for personal leisure and certain partnership or trust arrangements.
Before relying on a rental loss to reduce the tax on your salary, have your tax adviser check which part of the loss qualifies. Keep the land and building costs, related borrowing, and depreciation calculations clearly documented.
When Does the 20.42% Withholding Tax Apply?
For nonresident owners, the withholding requirement depends on who rents the property and how they use it. Where it applies, the payer deducts 20.42% of the gross rent before paying you.
Your management fees, repairs, and other deductible expenses do not reduce the amount used for this withholding calculation.
Which Rent Payments Require Withholding?
Withholding generally applies when a company rents your property or an individual rents it for business use. However, an individual renting the property as a home for themselves or their relatives does not need to withhold tax from the rent.
This exception does not extend to a company renting an apartment for an employee. Even though the employee lives there, the company is the tenant paying the rent, so the individual-residential exception does not apply.
When arranging the rental, check both the tenant named in the lease and the intended use of the property.
The obligation to deduct and remit the tax generally falls on the rent payer. For payments made in Japan, the withheld tax must normally be paid to the tax office by the 10th of the following month.
Before payments begin, confirm with your property manager or tax adviser who will handle the process and how the deduction will appear on your rental statements.
Receiving the rent in an overseas bank account does not automatically avoid withholding. The requirement can still apply to payments made abroad when the payer has a residence or office in Japan.
How Withholding Is Reconciled in Your Annual Return
The tax withheld during the year is credited against the income tax calculated in your Japanese tax return. It is a payment toward your annual tax liability, not an additional tax on top of it.
If the amount withheld exceeds your final liability, you can claim the difference as a refund. If it falls short, you will need to pay the balance.
When your tenant qualifies for the residential exception, you receive the rent without this deduction.
However, the rental income remains taxable in Japan, and you still need to assess your annual filing and payment obligations. The exception removes the tenant’s withholding requirement, not the owner’s income-tax liability.
Keep statements showing the gross rent, tax withheld, management charges, and amount paid to you. Give these to the person preparing your return so they can reconcile the rental income and withholding rather than rely only on the deposits shown in your bank account.
How to File and Pay Tax on Rental Income in Japan
You report rental income through Japan’s annual income-tax return, known as kakutei shinkoku. The tax year runs from January 1 to December 31, and the usual filing period is February 16 to March 15 of the following year.
Any remaining income tax is generally payable by the filing deadline.
When a Tax Return Is Required
If you also work in Japan, your employer’s year-end tax adjustment does not normally settle the tax on your rental income.
A limited exception applies to certain salaried taxpayers with an annual salary of ¥20 million or less.
If you receive your salary from one employer, it is subject to withholding and year-end adjustment, and your combined income other than employment and retirement income is ¥200,000 or less, you generally do not need to file a national income-tax return.
However, the ¥200,000 rule is not a general tax-free allowance. You may still need to report that income to your municipality for inhabitant tax. Also, if you file an income-tax return for another reason, such as claiming a medical-expense deduction, you must include the otherwise reportable rental income even when it falls below the threshold.
Keep your rental statements, expense receipts, loan-interest records, and depreciation calculations organized throughout the year. You need records supporting your income and expenses, not just the total payments received in your bank account.
When you file, arrange payment separately. The NTA does not normally send a payment notice for the balance shown on your return. Available payment methods include online banking, credit card, and registered bank-debit arrangements.
Depending on your previous year’s tax position, you may also need to make advance income-tax payments, generally in July and November. These are credited against your annual liability when you file the following return.
Blue Returns and Additional Deductions
Japan’s blue-return system, known as aoiro shinkoku, offers tax benefits to eligible property owners who obtain approval and meet the bookkeeping requirements.
You do not need to own a large portfolio to apply, although the scale of your rental activity affects which benefits you can claim.
For income earned in 2026, the main blue-return deduction limits are:
- Up to ¥100,000: For approved blue-return filers who do not meet the requirements for the larger deductions, including many small-scale landlords.
- Up to ¥550,000: For qualifying business-scale rental operations using double-entry bookkeeping and filing the required balance sheet, profit-and-loss statement, and return by the deadline.
- Up to ¥650,000: For owners meeting the ¥550,000 requirements who also submit the return and required financial statements through e-Tax on time, or satisfy the qualifying electronic-bookkeeping requirements, including any required notification.
These deductions reduce the income used to calculate tax; they are not a yen-for-yen reduction in your tax bill. The deduction is also limited to the eligible positive income available.
The NTA generally recognizes building rentals as business-scale when they involve approximately five separate houses or ten independently rentable units.
However, the overall circumstances matter. Owning one rental apartment and filing electronically does not, by itself, qualify you for the maximum deduction.
Apply for blue-return approval before the relevant deadline, rather than waiting until you prepare your annual return. The usual application deadline is March 15 of the year for which you want approval. If you start renting out property on or after January 16, the deadline is generally within two months of starting the rental activity.
Without blue-return approval, you can still deduct qualifying rental expenses under ordinary filing, often called a white return, but you cannot claim the blue-return special deduction. Recordkeeping remains necessary.
Filing From Overseas and Appointing a Tax Representative
If you are a nonresident who needs to file a Japanese tax return, you must appoint a tax representative in Japan, known as a nōzei kanrinin, and submit the appointment notification to the relevant tax office.
The representative can be a Japan-resident relative or a tax accountant; it does not have to be a family member.
The representative handles matters such as receiving tax-office correspondence, coordinating filings and payments, and receiving refunds on your behalf. A Japan-based company can also serve as the representative.
If you are leaving Japan but keeping your property rented out, arrange this before departure and review your filing obligations with a Japanese tax professional.
Ask your property manager to provide the rental accounts, and confirm separately who will prepare the return, handle tax payments, and act as your registered tax representative.
Plan Your Rental Property Investment With Tokyo Portfolio
Before committing to a rental property in Japan, review the expected income after operating expenses, loan repayments, and taxes. Have a qualified Japanese tax professional check your tax position and filing requirements so you can account for these obligations from the start.
At Tokyo Portfolio, we help international buyers find properties in Tokyo and navigate the purchase process. Our bilingual team works with you to understand your budget and investment goals, identify suitable properties, and guide you through the documentation and closing.
Whether you are buying your first rental apartment or adding to an existing portfolio, we can help you plan your purchase.
Contact Tokyo Portfolio for a free consultation to discuss your investment plans and explore available properties in Tokyo.
