Japan inheritance tax rules limit vacant house deductions for multiple heirs

A recent case highlights the complexities of Japan’s special tax deduction for the transfer of inherited residential property (vacant houses). Under the current regulations, individuals may be eligible to deduct a certain amount from their capital gains tax when selling an inherited home that meets specific criteria.

However, the amount of the deduction is strictly tied to the number of heirs. For sales occurring on or after January 1, 2024, if there are two or fewer heirs, the deduction is 30 million yen per person. If there are three or more heirs, the deduction decreases to 20 million yen per person. This change can significantly reduce the total tax benefit for families with multiple siblings.

Other critical requirements for the deduction include:

• The property must have been inherited through succession or legacy, not through a lifetime gift. • The total sale price of the property must not exceed 100 million yen. • The building must have been constructed on or before May 31, 1976, and must meet certain earthquake resistance standards (or be demolished/renovated). • The sale must be completed within a specific timeframe, generally by the end of the year following the third year after the inheritance began, or by the expiration of the special provision itself in 2027.