Real Estate
Selling an Inherited Korean Apartment: US Tax Implications
In Brief
If you inherit a Korean apartment and sell it, you face two capital gains regimes: Korean 양도세 (transfer tax) and US capital gains. The good news: your basis is the inheritance-date market value in both systems, and Korean tax paid is creditable against US tax via the foreign tax credit. Selling within ~6 months of death often results in near-zero gain.
Korean Side — 양도세 (Capital Gains Tax)
Korean transfer tax on an inherited property is calculated as:
Gain = Sale price − Inheritance valuation − Selling expenses
The inheritance valuation is the market value within 6 months before/after death — usually established by a certified appraisal during the inheritance tax filing. If you sell shortly after inheriting, sale price ≈ inheritance valuation, so the gain (and tax) is small.
Rates depend on holding period and property type:
| Holding period | Rate (single-home heir) |
|---|---|
| Under 2 years | 40–60% (high-tax) |
| 2 years or more | Progressive 6–45% |
| Owner-occupied for 2+ years (single home) | Possible exemption up to ₩1.2B sale price |
For inherited property, the deceased's holding period is generally added to yours — so a long-held parental apartment may qualify for the lower long-term rate immediately.
US Side — Capital Gains (Per Your US Attorney/CPA)
Under IRC §1014, property acquired from a decedent receives a stepped-up basis equal to its fair market value at the date of death. This applies to foreign real estate too. So your US capital gain = sale price (USD) − date-of-death FMV (USD).
Currency timing matters: report the sale at the USD/KRW exchange rate on the sale date and the basis at the rate on the date of death. Exchange rate movement alone can create gain or loss.
US capital gains tax: long-term (held over a year, including the decedent's holding period for inherited property — generally treated as long-term automatically under IRC §1223(9)) is taxed at 0/15/20% federal, plus 3.8% NIIT if applicable, plus state tax.
The Foreign Tax Credit (Form 1116)
Korean tax you pay on the sale is generally creditable against your US tax via Form 1116, subject to the FTC limitation. Done right, this typically avoids true double taxation on the gain.
Practical Example — Seoul Apartment Inherited & Sold
- Inherited at ₩2.0B fair market value, sold 18 months later for ₩2.1B
- Korean gain ≈ ₩100M → 양도세 roughly ₩20–25M depending on rates and holding period
- US gain (USD): basis $1.45M (₩2.0B at inheritance date), sale proceeds $1.52M (₩2.1B at sale date) → $70K gain → ~$10–14K US federal tax
- Foreign tax credit largely offsets US tax
When NOT to Sell Right Away
- If the Korean property qualifies for single-home owner-occupied exemption, your spouse (or sibling) may live there for 2+ years and sell tax-free in Korea on the first ₩1.2B of proceeds
- If the US estate tax (Form 706) hasn't been filed yet and you haven't fixed the date-of-death value formally, premature sale can complicate the basis
- If Korean interest rates and exchange rates favor holding for currency reasons
Practical Sequence
- Get a certified appraisal at date of death (locks in the basis on both sides)
- File Korean inheritance tax (9 months) using that appraisal
- Decide sell vs. hold based on tax + family + currency factors
- If selling — coordinate Korean 양도세 filing with US Form 1040 Schedule D + Form 1116
General information only — not tax or legal advice. Korean 양도세 (transfer tax) is handled directly by a Korean CPA & Tax Accountant. US capital gains, basis determination, and Form 1116 are referred to partner US-licensed CPAs and attorneys.