Purchase Tax in Demolish-and-Rebuild 2026

Demolish-and-rebuild deals generally grant existing residents an exemption from purchase tax on the new apartment they receive — but there are important conditions and limitations to be aware of, and the difference between projects can be significant.

The Basic Principle

The law grants an exemption from purchase tax to a resident in a demolish-and-rebuild project who receives a new apartment in exchange for their old apartment, provided that it is a project approved under the relevant statutory plans (TAMA 38/2, demolish-and-rebuild according to the Demolish and Rebuild Law). The idea is not to "penalize" residents who join projects that renew the urban fabric.

What Happens with an "Addition" in Apartment Size?

If the new apartment is significantly larger than the old apartment (an increase in area beyond the ceiling set by law), purchase tax may apply to the excess part — that is, to the difference between the value of the old apartment and the value of the new apartment, and not necessarily on the full value of the new apartment.

What About Residents Selling Their Rights?

A resident who chooses to sell their rights in the project (and not receive a replacement apartment) is subject to capital-gains tax on the profit, subject to the usual exemptions applicable to the sale of a residential apartment — this is a completely different route from receiving a replacement apartment. The choice between the two routes (receiving a new apartment versus selling the rights for cash) is a significant economic and family decision that should be considered carefully, including consulting with an accountant and a real estate tax attorney before signing the agreement with the developer.

What About the Developer/Contractor?

The developer, unlike the residents, is indeed required to pay purchase tax on the purchase of building rights from the original apartment owners — but this is a separate matter from the residents themselves and does not affect their exemption. This cost is usually factored into the overall economic feasibility of the project from the developer's perspective and is not directly passed on to the residents.

For the residents, the practical implication is that they can focus on examining the terms of the agreement with the developer (quality of construction, timelines, alternative housing period) without worrying about an additional tax burden on the apartment they receive in exchange — as long as the project meets the exemption conditions.

Required Documents and Approvals

To realize the exemption, it is necessary to present the approved demolish-and-rebuild agreement to the tax authority, the local authority's approval for the project, and complete documentation of the original rights in the old apartment. An attorney specializing in demolish-and-rebuild usually assists in submitting the correct documents to the tax authority.

Example: A Resident Receiving a Larger Apartment

Suppose a resident's old apartment is 70 square meters, and they receive a new apartment of 90 square meters in a demolish-and-rebuild project. If the addition (20 square meters) is within the exempt ceiling set in the agreement and by law, the entire new apartment is exempt from purchase tax. If the addition exceeds the ceiling, purchase tax may apply only to the value of the excess part — not on the full value of the new apartment.

What Happens in TAMA 38 Deals (Strengthening and Addition) Compared to Full Demolish-and-Rebuild?

In TAMA 38 projects (strengthening an existing structure with additions), existing residents enjoy similar tax relief in the spirit of the exemption, but the exact mechanism and ceilings may differ from a full demolish-and-rebuild project (demolition and reconstruction) — it is important to check the specific type of project with the attorney.

What Happens if the Project is Canceled After Signing?

If a demolish-and-rebuild project is canceled for any reason (failure to meet the required majority of residents, financing problems of the developer, refusal of the local authority), the residents revert to their original status as owners of the old apartment — and they have no new purchase tax liability, as no actual purchase transaction took place. However, it is advisable to ensure with the attorney that all contractual obligations with the developer are properly handled in case of cancellation.

Frequently Asked Questions

Is the exemption automatic or do I need to request it?
A specific request must be submitted to the tax authority with the relevant documents — the exemption is not granted automatically without a request.

What happens if the project is delayed for many years?
Delays in the project do not affect eligibility for the exemption, but it is advisable to ensure with an attorney that the original agreement is still valid and relevant.

Do residents renting an apartment during the interim period pay additional tax?
Rental income received from the developer for the alternative housing period is not considered taxable income under the regular routes, but it is advisable to consult with an accountant for individual verification.

Is there a difference between TAMA 38/2 and regular demolish-and-rebuild?
Both routes provide similar reliefs, but the exact conditions (such as the extent of the exempt addition) may vary depending on the specific plan and the municipality of the area.

Do I need to pay capital-gains tax on the old apartment in a demolish-and-rebuild deal?
In general, receiving a replacement apartment for the old apartment is not a taxable event for capital-gains tax, except in specific cases that exceed the usual conditions.

What happens if the resident sells the new apartment immediately after receiving it?
Immediate sale of the new apartment may trigger a more thorough examination by the tax authority and affect the applicable exemptions — it is advisable to consult with a tax attorney before such a sale.

Is there a difference in tax status between a resident who was the owner of a single apartment and a resident with several apartments in the project?
Yes — the exemption relates to the resident's primary residence; those holding multiple units in the renewed building may receive different treatment for the additional units.