[Beginner's Guide] Real Estate Tax Like a Code... 'When Should You Sell Your Existing Home If You Switch?'

[Asia Economy Reporter Lee Chun-hee] When you become a real estate reporter, you often get unexpected KakaoTalk messages from friends. "How do I apply for a housing subscription?" "What is the first priority?" For the 2030 'Burin-i (Real Estate + Beginner)' who only have subscription savings accounts created by their parents when they were young, I am trying to create a guide.

One of the most difficult things for Burin-i is taxes. When buying a house (acquisition), holding it (possession), and selling it (transfer), taxes are paid in three stages. Different laws apply at each stage. Acquisition tax is governed by the 'Local Tax Act,' possession involves the Local Tax Act and the 'Comprehensive Real Estate Tax Act,' and selling is subject to the 'Income Tax Act.' As a result, not only are the tax rates different, but the criteria for the number of houses also vary.

Moreover, as real estate regulations have gradually tightened, even among tax professionals, a new term 'Yangpo (giving up on capital gains tax)' tax accountant has emerged, indicating the increasing complexity akin to a high-level equation. Naturally, it is difficult for beginner Burin-i as well.

In response, the National Tax Service recently released a kind of real estate tax guide titled 'Major Amendments to the Three Real Estate Laws and 100 Questions and Answers on Housing Taxes.' Today, I would like to introduce some of the most frequently asked or confusing points for Burin-i.

When buying a house, you must pay not only the house price but also the 'acquisition tax'

Strengthening Acquisition Tax for Multiple Homeowners and Corporations in the July 10 Real Estate Measures (Provided by the Ministry of Land, Infrastructure and Transport)

Recently, the government significantly raised acquisition tax rates for multi-homeowners through the July 10 real estate measures. For one-homeowners in regulated areas, the existing tax rates of 1-3% based on the house price remain. However, for two-homeowners and three-homeowners or corporations, the rates have jumped up to four times from 1-3% to 8% and 12%, respectively. For those owning four or more houses, the rate surged from 4% to 12%. If the area is non-regulated, two-homeowners and three-homeowners are subject to one step lower tax rates.

Here, if you own houses in both regulated and non-regulated areas, the National Tax Service explains that taxation is based on the location of the newly acquired house regardless of the location of the previously owned house. For example, for two-homeowners, if both existing and new houses are in regulated areas, the rate is 8%; if existing is regulated and new is non-regulated, 1-3%; if existing is non-regulated and new is regulated, 8%; and if both are non-regulated, 1-3% applies.

However, in the case of a temporary two-homeowner due to 'one-homeowner switching houses,' if the existing house is sold within three years (or within one year if both houses are in regulated areas), it is considered as one house, and the existing 1-3% tax rate applies, so there is no need to worry. Multi-homeowners do not receive this benefit even if they purchase a new house due to moving.

Pre-sale rights: When are they considered houses and when not?

A model house of a housing complex in the metropolitan area is bustling with visitors. Photo by Kim Hyun-min kimhyun81@

Under current law, capital gains tax is increased for multi-homeowners. However, pre-sale rights have not been considered 'houses' yet, so they have not been included in the number of houses when calculating capital gains tax.

But starting next year, the number of houses will be calculated by combining both owned pre-sale rights and houses. For example, if you have one house and one pre-sale right, currently you are taxed as a one-homeowner for capital gains tax, but from next year, you will be taxed as a two-homeowner. However, this applies only to pre-sale rights acquired from next year, so those who already have pre-sale rights need not worry.

Also, one-homeowners who newly acquire pre-sale rights next year need not worry much when selling the existing house after moving into the new apartment. Even if you are currently a two-homeowner, special exceptions apply for 'temporary two-homeowners' who have one house and one association member’s move-in right due to redevelopment projects. The National Tax Service explains that "similar exceptions will be stipulated in the enforcement decree to apply to one house and one pre-sale right."

Acquisition tax also includes pre-sale rights in the number of houses. The National Tax Service states, "For cases newly acquired after the 12th of last month, even if the house is not yet completed, pre-sale rights and move-in rights are considered as acquiring a house and thus included in the number of owned houses." However, acquisition tax is imposed at the time the actual house is acquired through pre-sale or move-in rights, so it is not a direct tax target at this stage. At that time, the point of temporary two-homeownership is recalculated based on the date the new apartment is acquired.

Office-tels are also ambiguous as to whether they are houses or not. Whether an office-tel is considered a pre-sale right or not also varies. The National Tax Service explains, "Until actual use after acquisition, it is not confirmed whether the office-tel is residential or commercial, so office-tel pre-sale rights are not included in the number of houses." However, if it is a residential office-tel (based on property tax criteria), office-tels acquired after the 12th of last month are included in the number of houses.

Switching houses: By when must you sell?

View of Seoul apartment complex from the 63 Observatory./Photo by Hyunmin Kim kimhyun81@

Many one-homeowners move to a better house but become two-homeowners because their previous house does not sell. For Burin-i who did not want to become multi-homeowners, this can be frustrating. To prevent this, the government exempts multi-homeowner surcharges by considering certain cases as 'temporary two-homeownership' if specific conditions are met.

A key part of this is the December 16 measures announced last year. According to these measures, one-homeowners in regulated areas who want to qualify as 'temporary two-homeowners' must sell the existing house within one year and complete moving into the new house if they purchase a new house in a regulated area after the 17th.

This issue is intertwined with one of the biggest recent topics in the real estate market, the 'right to request lease renewal.' Depending on the order of the lease renewal request and the sales contract, even if the new house was purchased for actual residence, if the existing tenant requests lease renewal, the new owner may not be able to reside there. This interpretation is increasingly common. If the tenant renews the lease, it may become difficult for the new buyer to meet the non-taxation requirements.

Regarding this, the National Tax Service explains, "If it is clearly confirmed by documents such as the standard lease contract that the existing tenant is residing in the new house, the move-in period will be extended up to two years from the date of purchase of the new house or until the lease contract between the previous owner and the tenant ends."

However, the National Tax Service does not recognize lease periods renewed after the acquisition date of the new house. According to ongoing discussions about the right to request lease renewal, since the existing tenant’s lease renewal may occur after the buyer purchases the new house, there is a high possibility that some owners will fail to meet the temporary two-homeownership requirements.