'Existing House vs. Inherited House' Which Should Be Sold First for Tax Benefits?

Inheritance tax is a type of tax that, unlike other taxes, is experienced only once or twice in a lifetime. Since taxpayers find it difficult to predict when they will have to pay it, they often become flustered when they actually become liable for inheritance tax. In particular, ordinary and middle-class people, who usually think that inheritance tax is a tax only for the wealthy and therefore do not pay attention to it or prepare for it at all, find themselves in even more difficult situations. To alleviate these taxpayers' concerns about inheritance tax, the National Tax Service produced and distributed basic information on inheritance tax, including its concept, taxable subjects, filing and payment methods, and tax-saving strategies, titled "Inheritance and Gift Tax Knowledge" on the 28th.

Inheritance tax is a tax paid by the surviving family members on the deceased person's assets. To file an inheritance tax return, it is important to identify all the assets owned by the deceased (the decedent), such as houses, cars, stocks, and deposits. The inheritance tax is calculated by subtracting the decedent's debts from their assets. Therefore, it is also necessary to know the decedent's debts, including loans, credit card bills, and unpaid taxes.

If you use the "Safe Inheritance One-Stop Service," you can find out the decedent's assets and debts. This is a government-provided service that allows heirs to check various assets and debts of the decedent all at once.

(Photo) [Image source=Yonhap News]

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The amount of inheritance tax depends on who the heirs are. For example, if there is both a spouse and children, a minimum deduction of 1 billion KRW is applied. However, if there is only a spouse or only children, the deduction amount is reduced. When there is only a spouse, the basic deduction is 200 million KRW, and the spousal deduction ranges from 500 million to 3 billion KRW, making the total deduction between 700 million and 3.2 billion KRW. When there are only children, the deduction amount is 500 million KRW.

Tax may be imposed if only children live in a house inherited by their mother. Although the children did not receive money directly from the mother, tax law considers not paying rent to the landlord as effectively receiving a gift equivalent to the rent amount. However, if the children live together with the owner mother, no gift tax is imposed.

For five years after inheritance, you are considered a single-home owner. However, after five years, you may become a two-home owner and be liable for comprehensive real estate tax. If you inherit a house located in a provincial area, it may not be counted toward the number of houses you own. According to the Comprehensive Real Estate Tax Act, houses with a publicly announced price of 300 million KRW or less located outside the Seoul metropolitan area, metropolitan cities, and special self-governing cities are excluded from the house count.

It is more advantageous tax-wise to sell the existing house first. When a single household owns one house, only high-priced houses (over 1.2 billion KRW) are taxed upon sale, but a household owning two houses is subject to capital gains tax regardless of which house is sold. However, if it is a temporary two-house situation, selling the existing house within three years is not taxed. Also, when inheriting a house and selling the existing house, no capital gains tax is imposed regardless of the period. However, the existing house must meet non-taxable conditions such as being held for more than two years and having a price of 1.2 billion KRW or less.

Inheritance tax must be filed by one of the heirs at the tax office that has jurisdiction over the decedent's address. Filing can be done online. If the filing deadline (within six months from the end of the month in which the date of death falls) is missed, additional tax penalties may be imposed.

If the heir lacks sufficient cash to pay, they can pay part of the tax at the time of filing and pay the remaining tax in installments two months later. If the total tax amount is 20 million KRW or more, at least 50% of the total amount must be paid immediately. The installment payment plan allows payment of a certain amount annually and can be spread over up to 10 years.

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