"Moving to a Small House" Only for "Single-Home Seniors"... Avoid Tax Bombs to Secure Retirement Funds [Turning Your Home into a Senior House]

"Is Downsizing to a Smaller Home Beneficial or Not?"
Taxes Determined by Number of Homes, Price, and Length of Residence
Single-Homeowners with Over 2 Years of Ownership
Must Meet Home Price Limit of 1.2 Billion KRW
Can Avoid Heavy Tax Burden

According to the KB Real Estate Weekly KB Apartment Market Trend report, last week Seoul apartment sale prices surged by 0.22% in just one week, with apartment sale and jeonse prices listed on May 5th in Mapo-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

"How much money will remain after taxes if I downsize my current home and move?"

This is the most common question among elderly people trying to prepare for their retirement expenses through downsizing. The key factor is taxes. If the tax burden leaves no remaining difference, downsizing loses its meaning.

There are two types of taxes that seniors need to consider: capital gains tax when selling their current home, and acquisition tax when buying a new home. Among these, acquisition tax rates are determined based on the housing price and there are no tax exemptions. The crucial point is the capital gains tax. Kim Hyoseon, Senior Real Estate Specialist at NH Nonghyup, said in an interview with this publication, "When seniors consider downsizing, the price of their current home, the duration of residence, and the number of homes owned are the most important factors," adding, "These three determine the scale of the capital gains tax."

On December 23 last year, Kim Hyo-seon, Senior Real Estate Officer at NH Nonghyup, is being interviewed by Asia Economy at the NH Nonghyup Bank headquarters in Seodaemun-gu, Seoul. Photo by Jo Yong-jun

-What housing ownership conditions are advantageous when downsizing?

▲Under current tax laws, multi-homeowners face a heavy burden of additional taxes. Therefore, multi-homeowners should avoid downsizing their homes. This strategy is recommended only for single-homeowners. Of course, even single-homeowners need to minimize capital gains tax to maximize the remaining difference. If all three conditions?‘one household, one home’, ‘ownership for more than 2 years (and residence for more than 2 years in regulated areas)’, and ‘home price below 1.2 billion KRW’?are met, capital gains tax does not apply. In such cases, there is no loss due to taxes.

-If capital gains tax applies, what should be considered?

▲The length of residence is important. Seniors who have owned and lived in their home for a full 10 years or more can benefit from the ‘Long-term Holding Special Deduction’. Even if capital gains tax is high, 80% of it is exempted. They only pay 20% of the original amount, significantly reducing the tax burden. Let’s look at the difference in capital gains tax based on residence period using the example of Mapo Raemian Prugio in Mapo-gu, Seoul. If someone owned and lived in a 110㎡ (2 billion KRW) unit for 10 years and then moved to an 80㎡ (1.6 billion KRW) unit, they would pay only 22 million KRW in capital gains tax. If they lived there for 3 years, the tax increases to 82 million KRW. If they never lived there, it rises to 150 million KRW. For a two-homeowner, regardless of residence period, the capital gains tax is 440 million KRW. The difference after moving is 400 million KRW, so downsizing holds no meaning for multi-homeowners.

On the 15th, Seongsan Sijeong Apartment in Seongsan-dong, Mapo-gu, Seoul. Seongsan Sijeong Apartment is a complex with 33 buildings, 3,710 households, and up to 14 floors, completed in 1986. Photo by Jin-Hyung Kang aymsdream@

-How much difference can downsizing apartments in major Seoul areas make?

▲Let’s consider a case where a single-homeowner senior who has lived in their home for 10 years decides to downsize. Suppose they bought a home in December 2014, sold it in December 2024, and moved to a smaller apartment within the same complex. Including capital gains tax, acquisition tax, brokerage fees, and moving costs, the higher the price, the more tax is paid, but the larger the remaining difference.

Moving from a 110㎡ (2 billion KRW) unit to an 80㎡ (1.6 billion KRW) unit in Raemian Prugio, Mapo-gu, leaves 312 million KRW in hand. Moving from a 114㎡ (1.3 billion KRW) unit to an 81㎡ (1 billion KRW) unit in Seonsa Hyundai Apartment, Amsa-dong, Gangdong-gu, results in a difference of 260 million KRW. Changing from an 85㎡ (600 million KRW) unit to a 64㎡ (450 million KRW) unit in Sangye Jugong, Nowon-gu, which is exempt from capital gains tax, leaves 140 million KRW.

-What should seniors consider when downsizing?

▲For single-homeowners, most apartments in Seoul are estimated to leave more than 100 million KRW after taxes and various costs when downsizing. Therefore, the 100 million KRW limit on the difference that can be deposited into an IRP (Individual Retirement Pension) should be significantly increased. It is also necessary to check whether the value of the new home will be maintained after downsizing. Since housing constitutes a large portion of seniors’ assets, they should carefully select their new home to avoid depreciation.