An inherited mixed-use rental home — sell, let, or live in it?

In short: an inherited mixed-use rental home — a home and rental portion in one building — can all be sold, let or lived in. The forks are whether tenants remain and how the tax specials work. Selling as an "owner change," with tenants in the rental portion, transfers the landlord's position to the buyer (Civil Code Article 605-2), and because tenants are protected by the Land and Building Lease Act they cannot easily be made to leave. On sale, the residential 30-million-yen special deduction (Special Taxation Measures Act Article 35) applies only to the portion for residential use, and the small-scale residential-land special (Article 69-4) has separate allowances for the residential and the rental portions. Capital-gains tax and the specials' application are for a tax accountant; inheritance registration for a judicial scrivener; disputes with tenants for an attorney.

For an heir who inherits a "mixed-use rental home" — where part of the home is let — with tenants in place and is unsure of the exit, this article organises the material for judging it as a property, from the Civil Code, the Land and Building Lease Act, the Special Taxation Measures Act and the National Tax Agency's materials. A mixed-use home differs from a home alone and from a rental apartment alone. The final check on price and tax is made with a tax accountant and our own valuation.

An inherited mixed-use rental home — sell, let, or live in it?

First, note that all three are possible. On top of that, whether tenants remain, the building's age and whether you will live there change what suits.

A mixed-use rental home has, within one building, a "part used as a home" and a "part let to others." On inheritance, the landlord's position for the rental portion is also succeeded to comprehensively as property of the decedent (Civil Code Article 896). That is, the contracts with tenants carry over automatically and the rent keeps coming in. The entry point for a decision is whether to keep letting and earn income, live in the home part, or sell and cash out.

Option	Suits when	Main points
Sell	Far away / hard to manage / want to split as cash	Tenants change the buyer pool and price / apportioning the tax specials
Let (hold)	Want rental income / good location	Repairs, vacancy, management effort / a landlord's duties
Live	Want to keep living in the home part	Management of the rental part continues / a future exit

Where a single building that is hard to divide in kind is inherited by several heirs, selling and dividing the cash (partition by conversion) is often chosen; its flow is set out in The flow of selling inherited real estate by partition-by-conversion. The all-parties agreement when selling while jointly owned is the same structure as in Selling inherited co-owned real estate.

What changes between tenants in place (owner change) and clearing to vacant first?

Selling with tenants in place — an "owner change" — versus clearing to vacant first changes the buyer pool, price and speed.

In an owner change, the lease, the deposit and the tenants carry over to the buyer. The landlord's position passes to the buyer together with ownership of the building (Civil Code Article 605-2). You need not obtain the tenants' consent, but you notify them because the account for rent changes. What matters is that making tenants leave to create a vacancy is not easy. A building lease is protected by the Land and Building Lease Act; a landlord's refusal to renew or termination needs just cause (Articles 26 to 28), and an eviction payment may be needed.

	Owner change (sell with tenants in place)	Clear to vacant first
Buyer pool	Investors (as an income asset)	End users (to live in) plus investors
How price is seen	Rental yield feeds in	The market as a home feeds in
Vacating	Not needed (contracts carry over)	Just cause / eviction payment may be needed
Speed	Often faster, not waiting for vacancy	Negotiating vacancy can take time

The practice of selling while let is also set out in How does an heir living abroad sell an inherited, tenanted condominium?; the thinking on the rental portion is common to mixed-use homes. If negotiations with tenants sour and vacating or an eviction payment becomes a dispute, that is the attorney's field.

On sale, how far do capital-gains tax and the residential 30-million-yen deduction apply?

If a profit (capital gain) arises on sale, capital-gains tax applies. The residential 30-million-yen special deduction, in a mixed-use home, applies only to "the portion corresponding to residential use" as a rule.

Capital gains are calculated as "transfer price − (acquisition cost + transfer expenses)," with acquisition cost reflecting the building's depreciation (National Tax Agency tax answer No. 3252). The rate varies with the holding period: for a long-term capital gain, where the holding period exceeds five years as of 1 January of the year of sale, it is 15% income tax, 5% resident tax and the special reconstruction income tax (2.1% of the income-tax amount) (No. 3208). Real estate acquired by inheritance carries over the decedent's acquisition time and cost.

The 30-million-yen special deduction on selling residential property is in Article 35 of the Special Taxation Measures Act. In a mixed-use home, the deduction applies only to the portion corresponding to residential use, and does not reach the rental portion. However, where the residential portion makes up roughly 90% or more, the National Tax Agency indicates treatment allowing the whole to be treated as residential. How the apportionment is thought through and whether it applies vary by case.

Item	Content (basis)
30-million-yen special deduction	Only the portion for residential use (Article 35). If residential is roughly 90%+, the whole can be treated as residential
Long-term transfer (over 5 years)	15% income tax + 5% resident tax + special reconstruction income tax (No. 3208)
Acquisition cost	Carries over the decedent's cost and time; the building is depreciated (No. 3252)

Apportioning residential and rental use, whether the specials apply, and the tax calculation are the tax accountant's field. We organise the areas and use status of the residential and rental parts and connect this to the tax accountant's judgement. The inheritance-tax valuation and the actual sale price do not match.

How does the small-scale residential-land special change with whether there is separate registration?

On the inheritance-tax side, the small-scale residential-land special (Article 69-4 of the Special Taxation Measures Act) lowers the site's valuation. In a mixed-use home, the residential and rental portions use separate allowances.

The site of the residential portion may qualify as specified residential land for a 80% reduction up to 330 m², and the site of the rental portion as business-use residential land for leasing for a 50% reduction up to 200 m² (each with requirements and adjustment of the limit area). What matters here is how the building is registered. Whether one building is registered separately for residential and rental use, or registered as a single building without separation, can change the judgement of whose residence or business it is and the extent of the site the special reaches. Especially where two-household living, or being of the same livelihood, is involved, the presence or absence of separate registration can decide the outcome.

Portion	Special's category (Article 69-4)	Limit / reduction
Site of the residential portion	Specified residential land	80% reduction up to 330 m² (requirements apply)
Site of the rental portion	Business-use residential land for leasing	50% reduction up to 200 m² (requirements; limit-area adjustment)

Have a question about your situation?

Tell us about your property search or plans to sell.

Chat on LINEContact us

Separate registration is a matter of the building's title section, and the registration procedure itself is the field of a judicial scrivener and a land and house surveyor. Whether the small-scale residential-land special applies, the apportionment and the limit-area adjustment are judged by a tax accountant. With the inheritance-registration obligation (Real Property Registration Act Article 76-2, in force from 1 April 2024), the name must be put in order even to sell; that order is set out in Can the family home be sold before inheritance registration?.

Is there an option to keep living there and reorganise only the rental portion?

There is — living on in the home part while reviewing only the rental portion.

For instance, when a tenant in the rental portion leaves, you might stop letting and use it as home, keep letting for rental income, or sell the whole building and move. But so long as tenants remain, a landlord's duties (repairs, etc.) continue, and with the Land and Building Lease Act's protection, you cannot stop letting on the landlord's convenience alone. Looking ahead to a future rebuild or sale, the comparison of selling as vacant land after demolition versus selling with an old house is also a useful reference (Sell an inherited vacant house as vacant land after demolition, or as land with an old house?).

The division of roles is as follows. Property investigation, valuation, brokerage and the sale contract (including owner-change sales) are handled by Yotsuba Real Estate Co., Ltd. (四葉不動産株式会社; licensed real estate agent, Tokyo Governor (1) No. 113304). Preparation of documents concerning rights and obligations, and documents for public authorities — an estate division agreement, for instance — is handled by 四葉行政書士事務所. These two are independent business entities, engaged separately and directly by you. We neither pay nor accept referral fees or introduction commissions. Capital-gains tax, the 30-million-yen deduction and the small-scale residential-land special are for a tax accountant; inheritance and separate registration for a judicial scrivener (the title section for a land and house surveyor); disputes over vacating and eviction payments with tenants for an attorney — each engaged by you directly. The overall picture of inherited property is at Consultation on inherited real estate. Consultation is free of charge.

Frequently asked questions

Q. There are tenants in the rental portion. Can I clear it to vacant and sell right after inheriting?
A. Not easily, as a rule. A building lease is protected by the Land and Building Lease Act; a landlord's refusal to renew or termination needs just cause (Articles 26 to 28), and an eviction payment may be needed. Selling with tenants in place as an "owner change" lets you carry the contracts, deposit and tenants over to the buyer (Civil Code Article 605-2). Whether to wait for vacancy or sell tenanted is decided by comparing price, buyer pool and speed. If vacating negotiations become a dispute, that is the attorney's field.

Q. Can the residential 30-million-yen deduction be used for a mixed-use rental home?
A. Yes, but as a rule it is limited to the portion corresponding to residential use (Article 35), and does not reach the rental portion. However, where the residential portion makes up roughly 90% or more, the National Tax Agency indicates treatment allowing the whole to be treated as residential. Apportionment and whether it applies vary by case, so confirm with a tax accountant.

Q. Can the inheritance-tax small-scale residential-land special be used for both the home part and the rental part?
A. The site of the residential portion may qualify as specified residential land (330 m², 80% reduction), and the rental portion's site as business-use residential land for leasing (200 m², 50% reduction) (Article 69-4). But there are requirements and an adjustment of the limit area, and whether the building is registered separately can change the judgement. Whether it applies and the calculation are judged by a tax accountant.

Q. When selling, must I complete inheritance registration first?
A. Yes. Because a sale presupposes the seller is the registered owner, complete inheritance registration first. Inheritance registration became an obligation from 1 April 2024 (Real Property Registration Act Article 76-2), requiring application within three years of becoming aware of the acquisition. The registration procedure is the judicial scrivener's field.

Sources (primary)

• e-Gov "租税特別措置法" (Act on Special Measures Concerning Taxation) — Act No. 26 of 1957. Art. 35 (30-million-yen special deduction for capital gains on residential property); Art. 69-4 (special for calculating the taxable value of small-scale residential land for inheritance tax). Accessed 17 September 2026.
• National Tax Agency "No. 3302 Special for selling one's home" — the 30-million-yen special deduction on transferring residential property; treatment where there is a non-residential portion, such as a shop-cum-home. Accessed 17 September 2026.
• National Tax Agency "No. 3208 Calculating the tax on long-term capital gains" — long-term capital gains with a holding period over five years as of 1 January of the year of sale; 15% income tax, 5% resident tax, special reconstruction income tax (2.1% of the income-tax amount). Accessed 17 September 2026.
• National Tax Agency "No. 3252 What counts as acquisition cost" — what is included in acquisition cost and the building-depreciation approach; assets acquired by inheritance carry over the decedent's cost and acquisition time. Accessed 17 September 2026.
• e-Gov "借地借家法" (Act on Land and Building Leases) — Act No. 90 of 1991. Art. 26 (renewal of a building lease); Art. 27 (termination); Art. 28 (just cause for refusing renewal, etc.). Last amended by Act No. 53 of 2023. Accessed 17 September 2026.
• e-Gov "民法" (Civil Code) — Act No. 89 of 1896. Art. 605-2 (transfer of the landlord's position over real estate); Art. 896 (general effect of inheritance — universal succession). Accessed 17 September 2026.

The inheritance-tax valuation and the actual sale price do not match; capital-gains tax, the 30-million-yen deduction and the small-scale residential-land special — their application, calculation and apportionment — are carried out by a tax accountant, and this article makes no assessment of tax or feasibility in any individual case. Whether the rental portion can be vacated and the amount of any eviction payment vary with the individual circumstances, and disputes may proceed through the courts — that stage is the attorney's field. This article is general information and does not offer a legal determination. Inheritance and separate registration are by a judicial scrivener (the building's title section by a land and house surveyor), tax by a tax accountant, and disputes with tenants by an attorney. Property investigation, brokerage and the sale contract are undertaken by 四葉不動産株式会社 (licensed real estate agent); estate division agreements and similar documents by 四葉行政書士事務所 — two independent business entities, engaged separately and directly. We neither pay nor accept referral fees.

About the author

Joji Uramatsu — licensed real estate transaction specialist (Tokyo Governor registration No. 293544) and administrative scrivener (registration No. 25087022). Representative Director, Yotsuba Real Estate Co., Ltd. (四葉不動産株式会社; real estate business licence: Tokyo Governor (1) No. 113304); Representative, 四葉行政書士事務所. Kohinata, Bunkyo, Tokyo, about five minutes' walk from Myogadani station. For an inherited mixed-use rental home, the tenants' contracts, the registration and the tax specials go on the same table. Full profile: author page.