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4-4 Profit and Loss Offsetting / Summary from the FP Study Group [Yorukai]

2026年1月2日 12:12

This summary is a set of notes created for FP study purposes.
There may be errors in the content, misinterpretations, or a lack of updated information.
If you find any such issues, I would appreciate it if you could let me know privately.

1. Concept and Order of Profit and Loss Offsetting

① Mechanism of Aggregating Income and Profit and Loss Offsetting

Profit and loss offsetting is a calculation procedure where losses incurred within certain types of income during a specific period are deducted from the profits of other types of income.
This allows for the proper calculation of the total taxable income amount.

② Distinction Between Income Eligible and Ineligible for Profit and Loss Offsetting

The four types of income combinations eligible for profit and loss offsetting are
real estate income, business income, forestry income, and capital gains. Remember them as "Fu-Ji-San-Jo"!

Eligible for profit and loss offsetting
Losses from real estate income (excluding interest on debt for land acquisition).
Losses from business income (related to comprehensive taxation).
Losses from forestry income.
Losses from capital gains (excluding assets not typically necessary for daily life, etc.).

Losses from real estate and business are deducted from employment income, etc., and if any remains, it is then deducted from occasional income (before the 1/2 adjustment).

Ineligible for profit and loss offsetting (losses are treated as 0 yen)
Losses from miscellaneous income
Losses from public pensions or side jobs cannot be offset against other income.

Losses from occasional income
Even if expenses exceed income, they cannot be deducted from other income.
If a loss occurs in the calculation when receiving life insurance maturity benefits or surrender refunds (when net premiums paid, etc., exceed income), that loss cannot be deducted from the amount of other income.
However, if a profit (occasional income) is generated due to life insurance maturity benefits, etc., it is possible to deduct losses from other income (such as real estate or business income) from the occasional income (profit and loss offsetting).
Life insurance loss → Offsetting not allowed (cannot reduce other income).
Life insurance profit → Subject to profit and loss offsetting (can be offset against losses from real estate or business)

Interest on debt incurred for the acquisition of land within real estate income
The portion of a loss equivalent to this interest is excluded from offsetting.

Capital losses on assets not typically necessary for daily life
Losses from the sale of a vacation home, etc., cannot be offset.

Capital losses on golf club memberships
Even if it is capital gains subject to comprehensive taxation, losses from the sale of golf club memberships cannot be offset against other income.

③ Order of Profit and Loss Offsetting

First, within the group of ordinary income (real estate, business, employment, interest, dividends, miscellaneous), deduct losses from real estate and business from other profits (employment income, etc.).

Next, perform offsetting between capital gains (comprehensive) and occasional income.

If losses still remain, deduct them from forestry income and then retirement income in that order.

④ Practical Example of Profit and Loss Offsetting

Example 1 (Limitation on real estate losses)
Employment income of 3 million yen
Real estate income of -500,000 yen (including 300,000 yen in land debt interest)
Business income of -800,000 yen.

Only 200,000 yen (500,000 - 300,000) of the real estate income can be offset.
Combined with the 800,000 yen business loss, 1 million yen is deducted from the employment income, resulting in a total income amount of 2 million yen.

Example 2 (Treatment of golf club memberships)
Employment income of 4.5 million yen
Real estate income of -1.2 million yen (including 200,000 yen in interest on land debt)
In the case of a capital loss of 500,000 yen from the transfer of a golf club membership.

Only the 1 million yen of real estate loss that can be offset is deducted from employment income.
Since the loss from the golf club membership is ignored, the total income amount becomes 3.5 million yen.

Example 3 (Treatment of miscellaneous income)
Employment income of 6.9 million yen
Miscellaneous income of -400,000 yen
Real estate income of -500,000 yen (no land interest) in the case of.

The deficit in miscellaneous income is ignored, and only the 500,000 yen real estate deficit is deducted from employment income, so the total income amount becomes 6.4 million yen.
Note that retirement income is subject to separate taxation and is therefore not included in the total income amount.

2. Carryforward and Carryback of Losses

① Carryforward of miscellaneous losses

If you suffer damage to assets due to an earthquake, storm, flood, fire, theft, or embezzlement, and cannot fully deduct the miscellaneous loss deduction from that year's income, you can carry forward the loss amount for three years starting from the following year.

② Carryforward and carryback refund of net losses

Carryforward deduction of net losses
Blue return filers can deduct losses remaining after profit and loss offsetting (net losses) from the income of each year for three years starting from the following year.

Carryback refund of net losses
Blue return filers can also choose to carry back losses incurred in the current year to the previous year to receive a refund of income tax for the previous year.

③ Carryforward deduction system for capital losses related to residential property

For losses incurred from the sale of a specific home (residential property), if certain requirements are met, you can offset the loss against other income for that year, and further carry forward any remaining loss for three years starting from the following year.
Also, to apply this special provision, the asset must qualify as a "long-term capital gain" asset with an ownership period exceeding
5 years as of January 1 of the year of transfer.

※ Note
The "30 million yen special deduction" and the "special tax rate provision for the transfer of residential property" are systems designed to reduce taxes when a capital gain (profit) is realized.
The special provision for capital losses (a system for losses) cannot be used in conjunction with these "special provisions for when a profit is realized."
If you have a loss, you should choose "profit and loss offsetting/carryforward deduction for capital losses," and if you have a profit, you should choose the "30 million yen special deduction," etc.

Below are two special provisions: "replacement" and "sale when a housing loan remains."

A. Special provision for profit and loss offsetting and carryforward deduction of capital losses in the case of replacement of residential property, etc.
A system applied when you sell your home and purchase a new one (replacement).

Requirements for the transferred asset (the house being sold)
The ownership period as of January 1 of the year of transfer must beover 5 years.
It must be for residential use (must be sold by December 31 of the third year from the day it stopped being used as a residence).

Requirements for the replacement asset (the house being newly purchased)
Must be acquired between January 1 of the year prior to the sale and December 31 of the following year.
The floor area must be50㎡ or more.
At the end of the year of acquisition, there must be a housing loan with a repayment period of10 years or more.

Profit and loss offsetting/carryforward deduction
Theentire amountof the loss incurred from the sale can be offset against other income for that year (such as employment income).
Any loss that could not be fully offset in that year can be carried forward and deducted for3 yearsstarting from the following year.

Income limit
The total income amount for each year in which the carryforward deduction is received must be30 million yen or less.

B. Special provision for profit and loss offsetting and carryforward deduction of capital losses for specific residential property
A system applied when there is a remaining housing loan balance, even if it does not involve a replacement (sale only).

Requirements for the transferred asset (the house being sold)
The ownership period as of January 1 of the year of transfer must beover 5 years.
There must be a remaining housing loan balance related to the sold house.

Amount that can be offset
It is not the entire amount of the loss, but is limited tothe smaller of the following amounts.
・The actual loss amount incurred in the calculation of capital gains.
・The amount of "housing loan balance - sale price" immediately before the sale.

Profit and loss offsetting/carryforward deduction period
Similar to the replacement special provision, offsetting for that year and carryforward deduction for3 yearsstarting from the following year are possible.