Statutory definition

“When calculating total income, retirement income, or timber income, if a loss arises in calculating real estate income, business income, timber income, or capital gains, it shall be deducted from other categories of income in the order prescribed by Cabinet Order.” (Income Tax Act, Article 69(1))

This is the loss-offset provision. It establishes a mechanism for deducting a negative amount in one income calculation from other income.

The crucial wording is in the first half, not the second. It does not merely say “if there is a loss.”The category of income in which the loss arisesis limited from the outset to four: real estate income, business income, timber income, and capital gains.

Does a loss on selling crypto assets fall into any of these four categories? That is the first dividing line.

Overview

Miscellaneous Income Is Not Included in the Loss-Offset Provision

The statute expressly defines miscellaneous income.

“Miscellaneous income means income that does not fall into any of the categories of interest income, dividend income, real estate income, business income, employment income, retirement income, timber income, capital gains, or occasional income.” (Income Tax Act, Article 35(1))

It lists nine categories and defines miscellaneous income as everything outside them: a residual category.

Now return to Article 69(1). The four categories eligible for loss offset were real estate income, business income, timber income, and capital gains—four of the nine listed in Article 35(1).Miscellaneous income appears nowhere among these four.

The provision does not say that losses in other income categories are treated similarly. It lists four deductible loss categories and ends there; categories not listed cannot be derived from this provision.

If income from trading crypto assets is miscellaneous income, losses in that calculation cannot be deducted from employment income, dividend income, or occasional income. Even if salary is received in the same year, its taxable amount is not reduced by crypto losses.

Article 69(2), meanwhile, concerns losses in “income relating to assets not ordinarily necessary for daily living”; it does not expand eligibility.

What Happens within Miscellaneous Income?

Inability to offset against other income categories is different from inability to deduct anything within miscellaneous income. Article 35(2) determines this.

“The amount of miscellaneous income shall be the sum of the amounts listed in the following items.” “(ii) Gross revenue from miscellaneous income during that year (excluding income relating to public pensions and similar sources), less necessary expenses.” (Income Tax Act, Article 35(2) and item (ii))

Item (ii) concerns neither a single transaction nor a single crypto asset.Gross revenue from “miscellaneous income during that year”is the subject. The structure aggregates revenue belonging to miscellaneous income for the year and deducts the associated necessary expenses together. It does not calculate each transaction's gain or loss and select only positive results.

Accordingly, gains and losses on crypto transactions classified as miscellaneous income subject to aggregate taxation in the same year both enter the calculation under item (ii). Gains and losses from non-crypto sources are also combined if they fall within that same miscellaneous income category subject to aggregate taxation. However, domestic FX and other transactions falling under separately assessed “miscellaneous income from futures transactions” are calculated separately. Those gains cannot be offset against crypto miscellaneous income losses. Miscellaneous income subject to aggregate taxation is calculated by adding the public pension amount under item (i) and the amount under item (ii).

The necessary-expense provisions determine what goes into this calculation.

“The amounts to be included as necessary expenses in calculating” … “real estate income, business income, or miscellaneous income for that year shall, unless otherwise provided, be cost of sales and other expenses directly incurred in earning the gross revenue from that income, and selling expenses, general administrative expenses, and other expenses incurred during the year in activities generating that income (excluding expenses other than depreciation for which liability has not become fixed during that year).” (Income Tax Act, Article 37(1))

Miscellaneous income is included in that list. The qualification “unless otherwise provided” appears, and separate provisions exist for crypto assets.

“When calculating the amount to be included as necessary expenses in calculating that person's business income or miscellaneous income under Article 37(1) (Necessary Expenses), the value of crypto assets held on December 31 of that year forming the basis of that calculation shall be the amount valued using the valuation method selected by that person for crypto assets.” (Income Tax Act, Article 48-2(1))

This provision specifies not the necessary expenses themselves, butthe year-end value forming the basis of their calculation. A change in the value assigned to year-end crypto holdings changes the deductible necessary expenses and therefore the year's miscellaneous income.

What “a loss occurred” means depends in part on the valuation method. It is not simply the selling price minus the purchase price.

What Does the Carryforward Provision Say?

Can losses not fully deducted be carried into subsequent years? Article 70 addresses this.

“If a resident filing a final return has net losses arising in any of the three years preceding that year (limited to years for which a blue income tax return was filed)” … “an amount equivalent to those net losses shall, as prescribed by Cabinet Order, be deducted in calculating total income, retirement income, or timber income for the year covered by that final return.” (Income Tax Act, Article 70(1))

Not every loss can be carried forward.“Net losses”is the term limiting the scope.

“Net losses” is defined in Article 2(1)(xxv) of the Income Tax Act. It means the portion of losses eligible for offset under Article 69(1) that remains after deduction from other income categories under that article. Losses arising in the calculation of miscellaneous income are outside Article 69(1) in the first place and therefore are not these net losses. Consequently, losses from crypto transactions classified as miscellaneous income cannot be carried forward under Article 70.

Even where a loss qualifies as a net loss, Article 70(1) limits eligibility to “years for which a blue income tax return was filed.” A loss arising in a year without a blue return cannot be carried forward under this paragraph. Filing a blue return for another business does not turn a crypto miscellaneous income loss into an eligible carryforward.

The procedural requirements appear in paragraph (4).

“Paragraph (1) or (2) shall apply only where the resident specified therein has filed a final income tax return for the year in which the net loss arose and has filed final returns continuously thereafter.” (Income Tax Act, Article 70(4))

Filing only for the loss year is insufficient.“Continuously thereafter”means final returns must continue to be filed. A year without a filing breaks the sequence.

Paragraph (2) permits carryforward without requiring a blue return, but limits it to two categories: “(i) losses arising in the calculation of fluctuating income” and “(ii) losses on disaster-damaged business assets.” Neither is a general provision accommodating losses in miscellaneous income.

Corporations Are Entirely Different

So far, we have discussed income tax. Separate provisions apply to corporation tax.

“If a domestic corporation holds short-term trading commodities and similar assets at fiscal year-end (limited to those valued at that time at the amount determined using the market value method (the ‘market valuation amount’ in this paragraph); the same applies in this and the following paragraph), and, for crypto assets, holds them for its own account, valuation gains” … “or valuation losses” … “on those assets shall, notwithstanding Article 25(1) (Asset Valuation Gains) or Article 33(1) (Asset Valuation Losses), be included in gross income or deductible expenses in calculating income for the fiscal year containing that year-end.” (Corporation Tax Act, Article 61(3))

Even without a sale, a valuation loss on assets held at year-end is deductible. However, this paragraph applies only to assets valued under the market value method, so it does not cover every crypto asset.

This valuation loss applies for that fiscal year only.

“An amount equivalent to the amount included by a domestic corporation in gross income or deductible expenses for a fiscal year under Article 61(3) of the Act (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) shall be included in deductible expenses or gross income in calculating income for the following fiscal year.” (Order for Enforcement of the Corporation Tax Act, Article 118-10(1))

The same amount previously deducted is included in gross income in the following fiscal year. This is a reversal: the position is marked at year-end market value and reversed at the start of the next year. We discussed this mechanism in Are companies taxed just by having them?.

Even when holding the same crypto asset through identical price movements, individuals and corporations receive different loss treatment.

What Comes Next

The FY2026 Tax Reform Outline proposed carryforward of individuals' crypto asset losses. Details are discussed in Key points of the FY2026 tax system revision outline.

A tax reform outline is not itself law. The measures apply only after legislation is enacted, Cabinet Orders are prepared, and the effective date arrives. The provisions quoted here are those currently in force.

Points that require care in practice

• Whether crypto income is miscellaneous income or another category. A change here also changes whether it falls within the four categories in Article 69(1) of the Income Tax Act.
• Transactions spanning years. Article 35(2)(ii) limits the calculation to “during that year,” so gains and losses arising across December and January enter different years' calculations.
• Valuation of crypto assets held at year-end. Because Article 48-2(1) affects the basis for calculating necessary expenses, the selected valuation method changes the size of the year's loss.
• Carryforward procedures. The “continuously” requirement in Article 70(4) can cause problems later if returns were not filed after the loss year on the assumption that no filing obligation existed.
• Considering corporations and individuals together. Ignoring the reversal under Article 118-10(1) of the Order for Enforcement of the Corporation Tax Act can lead to misreading profits and losses.

In each case, the starting point is identifying the relevant provision and requirements. Before filing, confirm the tax year concerned and the valuation method selected for that year.

Legal basis

• Income Tax Act, Article 69(1) (Offsetting Profits and Losses) / Quoted wording: “When calculating total income, retirement income, or timber income, if a loss arises in calculating real estate income, business income, timber income, or capital gains, it shall be deducted from other categories of income in the order prescribed by Cabinet Order.”
• Income Tax Act, Article 69(2) (Same) / Quoted wording: “income relating to assets not ordinarily necessary for daily living.”
• Income Tax Act, Article 70(1) (Carryforward Deduction of Net Losses) / Quoted wording: “net losses arising to a resident filing a final return in any of the three years preceding that year (limited to years for which a blue income tax return was filed)”; “where such losses exist, an amount equivalent to them shall, as prescribed by Cabinet Order, be deducted in calculating total income, retirement income, or timber income for the year covered by that final return.”
• Income Tax Act, Article 70(2) (Same) / Quoted wording: “(i) losses arising in the calculation of fluctuating income”; “(ii) losses on disaster-damaged business assets.”
• Income Tax Act, Article 70(4) (Same) / Quoted wording: “Paragraph (1) or (2) shall apply only where the resident specified therein has filed a final income tax return for the year in which the net loss arose and has filed final returns continuously thereafter.”
• Income Tax Act, Article 35(1) (Miscellaneous Income) / Quoted wording: “Miscellaneous income means income that does not fall into any of the categories of interest income, dividend income, real estate income, business income, employment income, retirement income, timber income, capital gains, or occasional income.”
• Income Tax Act, Article 35(2) (Same) / Quoted wording: “The amount of miscellaneous income shall be the sum of the amounts listed in the following items”; “(i) the balance after deducting the public pension deduction from revenue from public pensions and similar sources during that year.”
• Income Tax Act, Article 35(2)(ii) (Same) / Quoted wording: “(ii) Gross revenue from miscellaneous income during that year (excluding income relating to public pensions and similar sources), less necessary expenses.”
• Income Tax Act, Article 37(1) (Necessary Expenses) / Quoted wording: “real estate income, business income, or miscellaneous income for that year”; “the amounts to be included as necessary expenses in calculating such income shall, unless otherwise provided, be cost of sales and other expenses directly incurred in earning its gross revenue, and selling expenses, general administrative expenses, and other expenses incurred during the year in activities generating that income (excluding expenses other than depreciation for which liability has not become fixed during that year).”
• Income Tax Act, Article 48-2(1) (Calculation of Crypto Asset Transfer Costs and Methods of Valuation) / Quoted wording: “When calculating the amount to be included as necessary expenses in calculating that person's business income or miscellaneous income under Article 37(1) (Necessary Expenses), the value of crypto assets held on December 31 of that year forming the basis of that calculation shall be the amount valued using the valuation method selected by that person for crypto assets.”
• Corporation Tax Act, Article 61(3) (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) / Quoted wording: “If a domestic corporation holds short-term trading commodities and similar assets at fiscal year-end (limited to those valued at that time at the amount determined using the market value method (the ‘market valuation amount’ in this paragraph); the same applies in this and the following paragraph), and, for crypto assets, holds them for its own account, valuation gains”; “or valuation losses”; “on those assets shall, notwithstanding Article 25(1) (Asset Valuation Gains) or Article 33(1) (Asset Valuation Losses), be included in gross income or deductible expenses in calculating income for the fiscal year containing that year-end.”
• Order for Enforcement of the Corporation Tax Act, Article 118-10(1) (Treatment in the Following Fiscal Year of Valuation Gains or Losses on Short-Term Trading Commodities, etc.) / Quoted wording: “An amount equivalent to the amount included by a domestic corporation in gross income or deductible expenses for a fiscal year under Article 61(3) of the Act (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) shall be included in deductible expenses or gross income in calculating income for the following fiscal year.”
• Income Tax Act, Article 2(1)(xxv) (Net Losses) / Defines the portion of losses under Article 69(1) remaining after deduction under that article.

Additional Authorities and Sources

• National Tax Agency: “No. 1522 Special Taxation of Miscellaneous Income from Futures Transactions” (Act on Special Measures Concerning Taxation, Article 41-14)
• Income Tax Act (e-Gov)

Sources checked September 7, 2026.