Renting, leasing, or purchasing a home is a significant event in one's life. That's why there is a lot of important information to consider. To assist those in the process of acquiring a home, we've opened the advisory service "Smart Home Tour." We will provide answers to frequently asked questions. Today's topic is a comprehensive overview of real estate taxes that need to be paid when buying, owning, and selling a property.
Taxes When Buying a Property: Acquisition Tax
The Acquisition Tax is the tax paid when acquiring a property, i.e., when you buy a house and become its owner. This tax must also be paid when purchasing a house from an existing owner or when receiving a newly constructed apartment through allocation. Additionally, it applies when inheriting or receiving a property as a gift. In the past, Acquisition Tax and Registration Tax were paid separately, but they have been combined since 2011 and are now collectively referred to as "Acquisition and Registration Tax."
Inheritance or Gift: If the transfer of property occurs before the donor's death, it is considered a gift; if it occurs after, it is considered an inheritance.
👉 wetax
Since the tax rate varies depending on factors such as the property's price and whether the buyer owns multiple properties, it is recommended to use the Tax Office's services for calculation.
It's worth noting that for first-time homebuyers, known as "Lifetime First Homebuyers," there is a reduction in the Acquisition Tax. If the property's value is below 150 million KRW, they can receive a full 100% reduction, and if it exceeds 150 million KRW, they can receive a 50% reduction (up to a maximum of 2 million KRW). As of May 16, 2023, even those who purchase a property as a Lifetime First Homebuyer with a remaining lease period of one year or less can qualify for this reduction. (Previously, if the homeowner did not reside in the property within three months of the acquisition, they would have to repay the reduced Acquisition Tax.)
Taxes for Homeowners: Property Tax and Comprehensive Real Estate Tax
Property Tax is a tax that property owners must pay, and it is divided into two installments in July and September for those who own real estate. If the Property Tax is 200,000 KRW or less, it can be paid in a single installment.
Comprehensive Real Estate Tax is a tax levied on properties with an assessed value exceeding 1.1 billion KRW. However, for those who own multiple properties, if the combined assessed value of their properties exceeds 600 million KRW, they must also pay the Comprehensive Real Estate Tax.
Assessed Value: The value of land evaluated by the Ministry of Land, Infrastructure and Transport, which typically differs from the transaction price when buying or selling real estate. This assessed value can also be checked on the Tax Office's website.
Property Tax and Comprehensive Real Estate Tax are assessed based on the value as of June 1st. For example, if you sold a property on May 31st, you would not be required to pay Property Tax or Comprehensive Real Estate Tax. However, if you sold it on June 2nd, you would be liable for these taxes. This is why it's often advised to sell a property before June 1st. From the buyer's perspective, they would naturally prefer to purchase a property after June 1st, so when transacting properties in May or June, mutual agreement is crucial.
The fair market value ratio for residential property tax applied in 2023 is as follows:
👉 Assessed value up to 300 million KRW: 43%
👉 Assessed value over 300 million KRW but not exceeding 600 million KRW: 44%
👉 Assessed value exceeding 600 million KRW: 45%
👉 Special reduced tax rate of 0.05%p applies for single homeowners with an assessed value of up to 900 million KRW.
Tax When Selling a Property: Capital Gains Tax
The Capital Gains Tax is the tax imposed on the profit made from selling a property (i.e., the selling price minus the buying price). The tax rate varies depending on the property's value and ranges from 6% to 45%.
For those who own multiple properties, they must pay a higher Capital Gains Tax rate (i.e., higher tax brackets), which is referred to as "over-taxation." For example, a second property owner would pay an additional 20%, resulting in a Capital Gains Tax rate of 26% to 65%. A third property owner would pay an additional 30%, resulting in a Capital Gains Tax rate of 36% to 75%.
The over-taxation of Capital Gains Tax for multiple property owners applies only to properties located in designated adjustment areas.
However, the government policy announced on June 21st by the administration of President Yoon Seok-yeol includes a reduction in the Capital Gains Tax for multiple property owners. As a result, until May 9, 2024, multiple property owners will only be subject to the basic tax rate. However, if the property ownership duration is less than two years, the over-taxation rate will apply.
You can calculate the Capital Gains Tax in advance on the National Tax Service's website.
👉 Hometax
Real estate taxes can be daunting, especially for first-time property buyers or sellers. This guide aims to simplify the complex world of real estate taxes, breaking down what you need to pay at different stages of property ownership.
Conclusion
Understanding the different types of real estate taxes can save you from unexpected financial burdens. Whether you're buying, owning, or selling property, being aware of your tax obligations can help you make more informed decisions.