Act on Special Measures Concerning Taxation

Where an individual has real estate income arising from a foreign used building in any year from 2021 onward, if there is an amount of loss from foreign real property income in the calculation of the amount of real estate income for that year, the amount equivalent to that amount of loss from foreign real property income is deemed not to have arisen with regard to the application of the provisions of Article 26, paragraph (2) and Article 69, paragraph (1) of the Income Tax Act and other provisions of laws and regulations concerning income tax.

In this Article, the meanings of the terms listed in the following items are as prescribed respectively in those items:

foreign used building: A building located outside Japan that has been used by an individual or used for business by a corporation (including an association or foundation without juridical personality prescribed in Article 2, paragraph (1), item (viii) of the Income Tax Act), and that an individual has acquired and used for the business of that individual that generates real estate income (limited to a building for which, in calculating the amount to be included in necessary expenses as the depreciation allowance of the building under the provisions of Article 37 of that Act in the calculation of the amount of real estate income, the useful life determined under the provisions of that Act is calculated in the manner specified by Order of the Ministry of Finance);

amount of loss from foreign real property income: Of the amount of losses arising from the lending of a foreign used building (including having another person (including, where the individual is a nonresident, an office, etc. prescribed in Article 161, paragraph (1), item (i) of the Income Tax Act; the same applies hereinafter in this item) use a foreign used building) in the calculation of the amount of real estate income of an individual (or, where there is an amount of real estate income from the lending of real property, rights existing on real property, vessels or aircraft located outside Japan other than the foreign used building (hereinafter referred to in this item as "foreign real property, etc.") (including having another person use foreign real property, etc.), the amount of that loss that cannot be fully deducted even after being deducted in the calculation of the amount of real estate income from the lending of the foreign real property, etc.), the amount calculated pursuant to the provisions of Cabinet Order as the portion corresponding to the amount of the depreciation allowance of the foreign used building.

Where a foreign used building to which the provisions of paragraph (1) have been applied is transferred, with regard to the application of the provisions of Article 38 of the Income Tax Act in calculating the acquisition cost of the asset to be deducted in the calculation of the amount of capital gains from the transfer, the phrase "cumulative amount" in paragraph (2), item (i) of that Article is deemed to be replaced with "the amount obtained by deducting, from the cumulative amount, the total of the amounts equivalent to the amounts of losses deemed not to have arisen with respect to the asset pursuant to the provisions of Article 41-4-3, paragraph (1) of the Act on Special Measures Concerning Taxation (Special Provisions on Aggregation of Profits and Losses, etc. Pertaining to Real Estate Income from Foreign Used Buildings)".

Beyond what is prescribed in the preceding two paragraphs, Cabinet Order provides for the necessary particulars concerning the application of the provisions of paragraph (1).