Tax When Selling an Inherited Japanese Sword: Capital Gains and Whether You Must File

When you sell an inherited Japanese sword, tax may apply depending on the size of the gain. Here we organize the basics of tax for an individual parting with an inherited Japanese sword. Because the calculation and whether a return is required depend on individual circumstances, confirm your actual filing with a tax accountant.

A Gain from Selling a Sword Is "Capital Gains"

A gain from selling a Japanese sword is, in principle, capital gains (jōto shotoku). Unlike land, buildings, or shares (taxed separately), it is subject to aggregate taxation — combined with other income such as salary and taxed at progressive rates (National Tax Agency No.3105; Income Tax Act, Art. 33).

A Sale Price of 300,000 Yen Is One Dividing Line

Gains from selling movable property ordinarily needed for daily life are non-taxable. However, precious metals, jewelry, calligraphy and paintings, antiques, and works of art and craft whose value per item or set exceeds 300,000 yen are excluded from that non-taxable treatment and become taxable (National Tax Agency No.3105; Order for Enforcement of the Income Tax Act, Art. 25).

Because a Japanese sword is regarded as falling under "calligraphy/paintings, antiques, and works of art and craft," it can be organized as follows: if the sale price per sword (or set) exceeds 300,000 yen it is taxable; if 300,000 yen or less it is in principle non-taxable. When selling several swords, the 300,000-yen test is applied per sword (not aggregated). Note that whether a valuable collector's sword counts as "movable property ordinarily needed for daily life" is open to differing views, so we recommend confirming with a tax accountant for high-value swords.

It Changes with Holding Period — Short-Term and Long-Term

When taxable, the taxable proportion changes with the holding period (National Tax Agency No.3152).

• Held 5 years or less (short-term) — the full gain is taxable
• Held more than 5 years (long-term) — half the gain is taxable

Calculating Capital Gains and the 500,000-Yen Special Deduction

Capital gains are calculated as follows (National Tax Agency No.3152):

> Capital gains = Sale price − (Acquisition cost + Transfer expenses) − 500,000-yen special deduction

The 500,000-yen special deduction applies to the year's aggregate-taxed capital gains; if the gain fits within it, no taxable income arises.

An Inherited Sword Inherits the Decedent's Acquisition Date and Cost

When you sell an asset acquired by inheritance, the decedent is treated as having continuously owned it (Income Tax Act, Art. 60(1); National Tax Agency No.3270).

That is, whether it is "more than 5 years" is counted from when the decedent acquired it, and the acquisition cost uses the amount from the decedent's acquisition. Even if you sell soon after inheriting, it can be "long-term" if the decedent owned it for a long time. Note that inheritance by qualified acceptance (genteishōnin) triggers a different rule (deemed transfer), so consult a tax accountant for such cases.

When You Don't Know the Purchase Price — Estimated Acquisition Cost

For an inherited sword, it is common not to know "how much the deceased paid." When the acquisition cost is unknown, you may treat 5% of the sale price as the acquisition cost (estimated acquisition cost; National Tax Agency No.3258). The statutory estimated acquisition cost targets land and buildings, but for assets other than land/buildings, such as a Japanese sword, National Tax Agency Q&A guidance indicates the same 5% treatment applies. If you know the actual acquisition cost, confirm with a tax accountant which is more advantageous.

If You Paid Inheritance Tax — Special Addition to Acquisition Cost

If you sell property on which inheritance tax was paid within three years after the day following the inheritance-tax filing deadline (roughly within 3 years and 10 months of the death), a special provision lets you add part of the inheritance tax paid to the acquisition cost (National Tax Agency No.3267; Act on Special Measures Concerning Taxation, Art. 39). It presumes inheritance tax was actually imposed on that sword.

Do You Need to File a Return?

When a taxable gain arises a return may be needed, but not always. A company employee who receives salary from a single source and has completed year-end adjustment generally does not need to file an income-tax return if the total of income other than salary and retirement income is 200,000 yen or less (National Tax Agency No.1900). If it exceeds 200,000 yen, a return is required.

• This 200,000-yen guide applies to income tax only; a separate resident-tax (local tax) filing may still be required.
• Pensioners, the self-employed, and others who are not salary earners are judged differently.
• Also, if you buy and sell swords repeatedly and continuously, the income may be treated as business income or miscellaneous income rather than capital gains (National Tax Agency No.3105).

Confirm Your Specific Filing with a Tax Accountant

The above is general information. Where the acquisition cost is unknown, for high-value swords, whether there is a business character, and the relationship with inheritance tax, the actual tax and filing are highly fact-specific and views differ. Confirm specific filing with a tax accountant, and procedures with your local tax office. For procedures before parting with a sword, see also Should You Sell or Keep an Inherited Japanese Sword? and The Basics of the Notification of Change of Owner.

Disclaimer

This page provides general information about taxation and does not constitute tax or legal advice. The amount of tax and whether a return is required depend on individual circumstances such as acquisition cost, holding period, other income, and any inheritance tax. For specific filing or decisions, consult a licensed tax accountant (zeirishi); for procedures, confirm with your local tax office or the National Tax Agency.