Complex Multi-Homeowners... Selling Now Reduces Taxes but Risks Loss if House Prices Rise

Transfer vs. Gift with Burden: Save Tens of Millions in Taxes
Reduce Taxes by Gifting or Selling Before April-End Official Price Announcement
The Key Is Future Value: Gifting Preferred if House Prices Rise

[Asia Economy Reporter Moon Jiwon] 'Hold or dispose' 'Transfer or gift'

This year, with the sharp rise in official prices of multi-family housing, the concerns of multi-homeowners are growing. The capital gains tax surcharge exemption for multi-homeowners ends this June, and the date for imposing the increased property tax (June 1) is fast approaching. The calculation has become complicated over whether to endure the growing property tax burden or when and how to dispose of surplus homes.

◆Gift with burden is more advantageous than transfer... better to dispose by May= According to the industry on the 14th, despite the government's capital gains tax surcharge exemption, gifting with burden is found to have a lower tax burden compared to a general transfer. Both capital gains tax and gift tax have a progressive tax structure where the higher the taxable base, the higher the tax rate. Choosing a gift with burden involving a jeonse deposit can spread the taxable base, thereby lowering the tax rate.

Consider the example presented by Woo Byungtak, team leader of Shinhan Bank Real Estate Investment Advisory Center. Mr. Kim, a two-homeowner who has held two houses worth 1.5 billion KRW (House A) and 600 million KRW (House B) for over 10 years, sells House A with a capital gain of 900 million KRW under the capital gains tax surcharge exemption. The capital gains tax imposed is 293 million KRW.

On the other hand, if he gifts House A with a jeonse deposit of 1 billion KRW to his independent child, the combined capital gains tax and gift tax amount to only 233.6 million KRW. If Mr. Kim chooses a simple gift, the gift tax jumps to 407.4 million KRW. If he sells after the capital gains tax surcharge exemption ends at the end of June, the capital gains tax reaches 475 million KRW. Therefore, if considering disposing of a house, gifting with burden within the first half of the year is advantageous.

Since gifting also raises the acquisition cost for the recipient, selling after five years when the carryover taxation does not apply can reduce the capital gains tax the child has to pay. In fact, due to these advantages, gifting among multi-homeowners has recently increased significantly. According to the Korea Real Estate Board, from December last year to February this year, housing gifts in the Seoul area totaled 6,922 cases, about 20% more than 5,767 cases in the same period last year.

If disposal is decided, it is better to move the timing forward before the end of May. This is because the property tax and comprehensive real estate tax imposition date is June 1. Analysis shows that if Mr. Kim disposes of the property by May 31, before the application of this year's sharply increased official prices of multi-family housing, the property tax burden this year decreases from 13.6 million KRW to 4 million KRW, a reduction of 9.6 million KRW.

◆Consider selling or gifting before official price confirmation= According to the '2020 Official Prices of Multi-family Housing (Draft)' released in mid-last month, official prices are expected to rise sharply again this year, so selling apartments without actual acquisition costs before the official prices are announced on the 29th is a tax-saving method.

On the surface, multi-family housing like apartments calculates capital gains based on actual transaction prices, so official prices have little effect. However, for apartments purchased before 2006 where actual acquisition costs cannot be confirmed due to lost contracts, capital gains are calculated based on official prices. If official prices rise, capital gains increase, raising the taxable base for capital gains tax.

For gifting, detached houses without comparable sales cases are taxed based on official prices multiplied by the gift tax rate, so it is advantageous to gift when official prices are low. If gifting an apartment with a jeonse deposit as a gift with burden, doing so within this month can reduce acquisition tax. This is because the non-burdened portion excluding the jeonse deposit or loans is taxed based on official prices for acquisition tax.

However, experts advise that the method of disposing surplus homes should be decided by considering future value as much as taxes.

Lee Sanghyuk, head of the Inheritance and Gift Center at Hana Bank PB Business Support Department, said, "Deciding whether to gift or sell is not just about taxes," adding, "Even if you pay a little more tax, if you believe the future value will definitely improve, gifting may be better." In fact, many recent multi-homeowners are known to sell homes in the outskirts of Seoul with low price appreciation potential and gift homes in prime locations like Gangnam.

This content was produced with the assistance of AI translation services.