The current income tax deduction on housing loans will expire at the end of this year, but, as in the past, it will probably be renewed in some form. The tax deduction was first implemented in 1972 and has been revised repeatedly ever since. The current deduction, revised in 2022, cut the rate from 1.0 to 0.7 percent of the balance of the loan in a given year for up to 13 years. Originally, the deduction was 1 percent of the entire price of the house for up to 3 years, and has fluctuated rather liberally over time, depending on how desperately the government wanted to use home sales as an economic stimulus measure. 

That’s why the reason the deduction will likely be renewed again isn’t just that it’s become an expected feature of home ownership. On April 21, the welfare ministry announced the results of a survey of people who bought homes between 2022 and 2025. Twenty-one percent of the 8,400 respondents said that if there had been no tax deduction on housing loans they wouldn’t have purchased a home. Kyodo says that this survey will be used to decide on whether to extend the deduction after this year, with the implication that it will be. Among respondents, only 20 percent said that the housing loan tax deduction had “no influence” over their decision to buy a home. 

Higher income buyers have lost something over time. Currently, anyone making more than ¥20 million a year is ineligible for the deduction, though the ceiling used to be ¥30 million. The carryover has also been decreased. If the amount of the tax deduction turns out to be more than the income tax owed the government, the excess can be applied to local taxes, but only up to ¥97,500. The maximum used to be ¥136,500. 

The housing loan tax deduction has always been controversial, and not just in Japan, because it’s basically discriminatory. Why should people who can afford to buy a home get a special break on their taxes? The ostensible reason is to promote home ownership, which is generally assumed to be a good thing for society, but it ignores the situation of renters. Landlords in Japan do not get a deduction when they buy property because it only applies to people who purchase a home they will live in, but landlords undoubtedly pass the cost of all the taxes they pay on to their tenants, so landlords always have a means of handling tax issues. They don’t need a deduction. The only purpose of the deduction for homeowners is to encourage sales, which helps the real estate and construction industries, not to mention the banks that provide the housing loans. 

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