Points to note when calculating capital gains when selling used overseas real estate

If you are renting a used overseas real estate property and have calculated the building's useful life using the simplified method,

losses equivalent to depreciation expenses cannot be offset against income such as:

-Domestic real estate income

-Salary income

-Business income

For example,

Suppose your overseas real estate income is △¥10 million (including △¥8 million in depreciation expenses)

Domestic real estate income is ¥12 million.

In this case, the △¥8 million amount equivalent to depreciation expenses of your overseas real estate income is not eligible for offset.
(The remaining △¥2 million can be offset.)

When selling a used overseas real estate property that is subject to limitations on offsetting expenses under this system,

there are some points to keep in mind when calculating your capital gains.

The amount not subject to the profit and loss offset will be added to the acquisition cost

When calculating capital gains, the acquisition cost to be deducted from income is calculated as follows:

For buildings used for business purposes,

the book value (the amount remaining after deducting accumulated depreciation from the acquisition price) is the acquisition cost.
(The portion not expensed)

However, if there are restrictions on the offset of income from overseas used real estate,

the amount that cannot be offset against income is added to the acquisition cost.

For example,

• The book value of an overseas used building is 20 million yen
• The accumulated losses that cannot be offset against income are 10 million yen

In this case,

the total acquisition cost is 30 million yen.

Please note that the book value and acquisition cost of a building are different amounts.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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