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. 

However, there is one aspect of Japanese tax policy that the welfare ministry survey, as well as the media, doesn’t take into consideration, and that’s the consumption tax (CT). Though the consumption tax gets a lot of press, especially right now with inflation so high and consumption in general flagging, no one ever discusses it in relation to home purchases. But every house or condo that is bought from an agent or a developer is subject to a 10 percent CT levy. Land is not subject to CT, nor homes that are sold directly by the owner, but everything else costs an extra 10 percent, including the realtor’s fee, and when you consider that a home is certainly the biggest purchase anyone will ever make in their life, it’s a huge outlay. The income tax deduction for housing loans is a pittance in comparison, so in the balance the purchaser is not getting any savings when it comes to taxes in general. 

And, in fact, the government seemed to take the consumption tax into consideration after it was first implemented in 1997. Two years later, the deduction was revised upwards to a maximum of ¥500,000 the first year and ¥50,000 thereafter for up to 15 years, depending on the balance. Since then, however, the deduction has been revised downward several times, despite the fact that the CT has been increased several times. 

So while a substantial portion of home buyers told the government they wouldn’t have bought a home if the tax deduction wasn’t in effect, no one in the welfare ministry asked about the CT effect. As already mentioned, the survey is carried out to decide whether to extend the housing loan tax deduction. Those who wish to reduce the CT in some way, such as the main opposition party, the Constitutional Democratic Party of Japan, might do well to carry out their own survey to find out how many people who are not planning to buy a home due to money issues might change their mind if home purchases were not subject to CT, but nobody thinks about this because nobody brings it up. The CDPJ’s main proposal is to exempt food from the CT, so how about housing, which is also considered a necessity for basic living? 

If this sounds unrealistic, one should imagine how it would affect sales if all prices advertised for new homes included the CT, which adds literally millions to the final price and increases the amount of money the buyer will have to borrow. Once all these costs are taken into account, regardless of the income tax savings through the deduction, the case for buying over renting becomes less persuasive given that, in the end, the money spent on a home isn’t going to come back to the buyer any more than the rent paid by the tenant is going to come back, since the value of homes (as opposed to land) depreciates significantly in a relatively short period of time. Return on investment for Japanese homeowners is never guaranteed owing to Japan’s housing policies, which isn’t necessarily a bad thing but if consumers knew the real situation they might actually decide that renting would be less stressful.