Tax on Rental Income from Residential Property in Japan: How to Calculate, Deductible Expenses, and Legal Tips
A detailed guide to rental income tax in Japan in 2026: how to calculate fudōsan shotoku, deductible expenses, and benefits of the blue-form aoiro shinkoku return.
Aug 7, 2026·✍️ olablog·⏱ 14 min read
A detailed guide to rental income tax in Japan in 2026: how to calculate fudōsan shotoku, deductible expenses, and benefits of the blue-form aoiro shinkoku return.
After building up their savings for some time, many Vietnamese people in Japan decide to buy a condominium (mansion) or a detached house (isshodate) for both personal use and rental income, or as a source of passive investment returns. However, once rent payments start flowing into their bank accounts, many find themselves overwhelmed: "Do I have to pay tax on rental income?", "How do I file my tax return without getting penalized?", "Is there a legal way to deduct expenses and reduce the amount of tax I have to pay?".
Fear of complicated administrative procedures and language barriers leads many people to skip filing their tax returns or prevents them from optimizing their expenses, resulting in a higher tax bill than necessary. In this article, OlaChill will help you work through each of these issues and explain Japan’s tax rules for rental real estate income as of August 2026, along with completely legal "tax deduction tips."
How is rental income from residential property in Japan calculated?
Under Japan’s tax system, income generated from renting out land, houses, apartments, or parking lots is classified as real estate income — 不動産所得 (fudōsan shotoku).
It is important to note that taxable income is not the total amount of rent you collect, but the amount remaining after eligible operating expenses have been deducted.
$$ \text{Taxable real estate income} = \text{Total revenue (総収入金額)} - \text{Eligible expenses (必要経費)} $$
Amounts included in Total revenue (総収入金額 - sōshūnyū kingaku)
- Monthly rent — 賃料 (chinryō): Recurring payments collected from tenants.
- Management/service fees — 共益費・管理費 (kyōeki-hi / kanri-hi): Additional amounts collected from tenants to cover electricity, water, and cleaning of common areas.
- Key money — 礼金 (reikin): A non-refundable payment given by the tenant to the landlord when signing the contract. This is 100% taxable income in the year it is received.
- Contract renewal fees — 更新料 (kōshin-ryō): Generated when a tenant renews their lease (usually once every 2 years, and typically equal to 1 month’s rent).
- Non-refundable portion of the security deposit — 敷金のうち返還不要なもの (shikikin): The initial security deposit 敷金 (shikikin) is normally held temporarily, but if the contract states that a portion will be deducted and not returned (for example, 敷引き - shikibiki), that portion must be included in revenue for that year.
What tax rates apply?
Real estate income in Japan is combined with income from other sources (such as employment income 社員 - shain) under the aggregate taxation system — 総合課税 (sōgō kazei).
After total taxable income has been calculated, national income tax — 所得税 (shotoku-zei) is applied using a progressive tax rate schedule ranging from 5% to 45% (as of August 2026):
- Below 1.950.000 JPY (~315 million VND): Tax rate 5% (Deduction 0 JPY)
- From 1.950.000 - 3.300.000 JPY: Tax rate 10% (Deduction 97.500 JPY)
- From 3.300.000 - 6.950.000 JPY: Tax rate 20% (Deduction 427.500 JPY)
- From 6.950.000 - 9.000.000 JPY: Tax rate 23% (Deduction 636.000 JPY) (Note: In addition to income tax, taxpayers must also pay 2,1% Special Reconstruction Income Tax 复兴特别所得税).
Eligible expenses (必要経費) that can be deducted legally to reduce tax
The key to optimizing your tax bill is understanding eligible expenses — 必要経費 (hitsuyō keihi). If you correctly report all of the expenses below, you can significantly reduce your taxable income.
1. Depreciation expenses — 減価償却費 (genka shōkyaku-hi)
This is the largest and most important expense. Your house loses value over time. The government allows you to treat this "wear and tear" as a monthly expense even though no cash payment is made.
- Golden rule: You may depreciate only the value of the building (建物 - tatemono) and fixtures and equipment (設備 - setsubi). You absolutely CANNOT depreciate the land (土地 - tochi) because land does not lose value over time.
- Statutory useful life (法定耐用年数): Wooden houses (木造 - mokuzō) have a useful life of 22 years; reinforced-concrete houses (RC - reinforced concrete) have a useful life of 47 years.
2. Bank loan interest — 借入金利息 (kariirekin risoku)
If you take out a bank loan (住宅ローン or アパートローン) to purchase rental property, the annual loan interest (利息 - risoku) is treated as a reasonable deductible expense.
- Important note: Monthly principal repayments (元金 - gankin) are NOT expenses. Only the interest can be deducted for tax purposes.
3. Taxes and public charges — 租税公課 (sozei kōka)
Taxes arising from ownership of rental real estate can be included as expenses:
- Fixed asset tax — 固定資産税 (kotei shisan-zei) and City planning tax — 都市計画税 (toshi keikaku-zei) paid annually.
- Real estate acquisition tax — 不動産取得税 (fudōsan shotokuzei) (paid only once when the property is newly purchased).
- Stamp duty — 印紙税 (inshi-zei) on purchase/sale and rental agreements.
4. Management and brokerage fees — 管理費・仲介手数料
- Property management outsourcing fee ( mạn/tháng) — 管理委託料 (kanri itaku-ryō): Money paid to the real estate company managing the tenants (usually 3% - 5% of monthly rent).
- Tenant-finding brokerage fee — 仲介手数料 (chūkai tesūryō): Usually equal to 1 month’s rent when a new tenant is found.
5. Repair expenses — 修繕費 (shūzen-hi)
Costs for repainting walls, replacing toilets, repairing plumbing, and replacing broken air conditioners.
- The distinction: Minor repairs that maintain the property in its original condition can be fully recorded as 修繕費 (shūzen-hi) in the year they are incurred. If the work is a major renovation that increases the property’s value (such as demolishing and rebuilding the entire interior with high-end fittings), it is considered a capital expenditure — 資本的支出 (shihonteki shishutsu) and must be depreciated over several years.
6. Other expenses
- Insurance — 損害保険料 (songai hoken-ryō): Fire insurance (火災保険) and earthquake insurance (地震保険).
- Travel and communications — 旅費交通費・通信費: Transportation costs for traveling to the property for inspections, and phone expenses for communicating with tenants or the management company.
- Professional service fees — 専門家報酬: Fees paid to a tax accountant (税理士 - zeirishi) or a lawyer/procedural consultant.
Summary table of eligible tax-deductible expenses
| Japanese expense name | Vietnamese name | Conditions / Calculation method |
|---|---|---|
| 減価償却費 (genka shōkyaku-hi) | Depreciation expenses | Only the building/equipment portion is included, using the straight-line method (定額法). |
| 借入金利息 (kariirekin risoku) | Interest on a home-purchase loan | Only interest is included; principal repayments to the bank are not. |
| 固定資産税・都市計画税 | Fixed asset tax / City planning tax | Based on the annual tax notice issued by the local government. |
| 管理費・修繕積立金 | Management fees / Repair reserve fund | Monthly payments to the building management association (for condominiums). |
| 修繕費 (shūzen-hi) | Maintenance and repair fees | Minor repairs to restore damaged items and equipment to normal usable condition. |
| 損害保険料 (songai hoken-ryō) | Insurance premiums | Annual fire, disaster, and other insurance premiums. |
| 税理士報酬 (zeirishi hōshū) | Tax accountant service fees | Costs of hiring someone to help prepare the 確定申告 tax return. |
Residence tax (住民税) and individual business tax (個人事業税)
In addition to national income tax (所得税), rental income may also trigger 2 local taxes that landlords should pay particular attention to:
1. Residence tax — 住民税 (jūmin-zei)
Residence tax is calculated as a fixed 10% of the previous year’s total taxable income (including 6% municipal tax 市区町村民税 and 4% prefectural tax 道府県民税).
For example: If your net real estate income after deducting all expenses is 1.000.000 JPY (162 million VND), you will have to pay an additional 100.000 JPY (16,2 million VND) in residence tax the following year.
2. Individual business tax — 個人事業税 (kojin jigyō-zei)
Not everyone who rents out a property has to pay individual business tax. This tax applies only when your rental activity reaches a business scale (事業規模 - jigyō kibo) [1.2.2, 1.2.3].
The standard benchmark set by Japan’s tax authorities is the "5-building or 10-room rule" — 5棟10室ルール (go-tō jisshitsu rūru):
- Renting out 5 or more detached houses (戸建て).
- Or renting out 10 or more apartment rooms (アパート・マンション).
If you meet this business scale, you will be subject to an individual business tax rate of 5% for the real estate business. However, the government provides a basic exemption of 2.900.000 JPY/year (~470 million VND) for this tax. If your net profit is below this amount, you still do not have to pay.
The blue-form tax return (青色申告 - Aoiro Shinkoku): the landlord’s tax-optimization "weapon"
When filing your 確定申告 (kakutei shinkoku) tax return, you have 2 options: the white-form return (白色申告 - shiroiro shinkoku), which is simpler but offers fewer benefits, or the blue-form return (青色申告 - aoiro shinkoku), which requires more detailed bookkeeping but provides major tax advantages.
┌────────────────────────────────────────┐
│ Tax filing method (確定申告) │
└───────────────────┬────────────────────┘
│
┌─────────────────────────┴─────────────────────────┐
▼ ▼
┌──────────────────┐ ┌──────────────────┐
│ White-form (白色)│ │ Blue-form (青色) │
│ - Simple bookkeeping│ │ - Major tax benefits│
│ - No tax deduction│ │ - Proper bookkeeping required│
└──────────────────┘ └─────────┬────────┘
│
┌──────────────────────────────────────────┼──────────────────────────────────────────┐
▼ ▼ ▼
┌─────────────────────┐ ┌─────────────────────┐ ┌─────────────────────┐
│ 100.000 JPY deduction│ │ 550.000 JPY deduction│ │ 650.000 JPY deduction│
│- Small-scale operation│ │- 5棟10室 scale │ │- 5棟10室 scale │
│- Simple bookkeeping (簡易簿記)│ │- Double-entry bookkeeping (複式簿記)│ │- Double-entry + e-Tax filing│
└─────────────────────┘ └─────────────────────┘ └─────────────────────┘
3 invaluable benefits of the blue-form return (青色申告)
- Special blue-form deduction (青色申告特別控除):
- 100.000 JPY (~16,2 million VND): Available to small-scale landlords (below 5棟10室) who only need to maintain simple books (簡易簿記).
- 550.000 JPY (~89 million VND): Available when you meet the 5棟10室 scale, use double-entry bookkeeping (複式簿記 - fukushiki boki), and file on paper.
- 650.000 JPY (~105 million VND): Available when you meet the 5棟10室 scale, use double-entry bookkeeping, and file electronically through e-Tax or maintain electronic records.
- Carry losses forward for 3 subsequent years — 純損失の繰越控除 (junsonshitsu no kurikoshi kōjo):
- If you make a loss this year (for example, because repair expenses are greater than the rent collected), the loss can be carried forward and deducted from your taxable income for the 3 following years, helping you save on taxes over the long term.
- Paying wages to family members — 青色事業専従者給与 (aoiro jigyō senjūsha kyūyo):
- If you meet the business scale requirement, you can pay monthly wages to your spouse or relatives who help manage the property and record the entire wage amount as a reasonable expense, thereby reducing taxable income.
Tax filing tips 確定申告 (Kakutei Shinkoku) for Vietnamese residents
1. Take advantage of loss offsetting — 損益通算 (son'eki tsūsan)
This is a "secret weapon" for people who work for a company (社員 - shain) and invest in rental property.
In the first years after purchasing a property, depreciation expenses (減価償却費), brokerage fees, and acquisition taxes are often substantial, causing real estate income to become NEGATIVE (a loss). Japan’s tax authorities allow you to use this real estate loss to directly offset your employment income. As a result, your total taxable income for that year decreases, you may receive a refund of income tax (所得税) withheld by your employer, and your residence tax (住民税) for the following year will also be reduced!
Note: The portion of bank loan interest attributable to the value of the land (土地にかかる借入金利息) CANNOT be used to offset employment income.
2. Filing deadlines and procedures
- Filing period: From 16/02 to 15/03 each year (for income earned during the previous calendar year).
- Blue-form registration: If you want to use the blue-form return (青色申告), you must submit the "Application for Approval of Blue-Form Filing" (青色申告承認申請書 - aoiro shinkoku shōnin shinseisho) to the Tax Office (税務署 - zeimushho) by 15/03 of that year (or within 2 months of starting to rent out the property).
Frequently asked questions
Q. Are foreigners with an engineer visa or permanent residence in Japan allowed to rent out property?
Answer: Yes. Personal ownership and rental of real estate do not violate visa regulations. However, if you establish a large-scale real estate business, you should consider changing to an appropriate status of residence (such as a Business Manager visa - 経営・管理).
Q. I have one condominium unit that I rent out. Its annual revenue is 1,2 million yen, but my expenses total 1,5 million yen (a loss of 300.000 yen). Do I have to file a 確定申告 tax return?
Answer: You are NOT required to file if you do not wish to. However, you SHOULD FILE in order to offset the loss (損益通算) against your employment income and receive an income tax refund.
Q. Is the security deposit 敷金 (shikikin) collected from a tenant taxable?
Answer: No, if the contract states that it will be returned to the tenant when they move out. The deposit is included in taxable income only if the contract contains a "non-refundable" provision (敷引き) or if you retain part of the deposit after the tenant moves out to cover repair expenses.
Q. If I purchase accounting software myself (such as Yayoi Kaikei or Freee) to prepare my own Kakutei Shinkoku tax return, can the software cost be deducted?
Answer: Yes. The cost of purchasing or renting accounting software, as well as printers and printing paper used to prepare tax documents, can be included under communications and office supplies expenses (通信費・消耗品費).
Conclusion
Understanding the tax rules for renting out residential property in Japan not only helps you comply with the law but is also essential for optimizing your investment returns. Be sure to keep your receipts and supporting documents, and make full use of legally deductible expenses such as property depreciation (減価償却費) and the benefits of the blue-form return (青色申告).
If you would like to learn more about practical experiences of living, working, and managing finances in Japan, check out these other useful articles on OlaChill:
- OlaChill Blog — Regularly updated guides on daily life and administrative procedures
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