“Whatever…”… Be careful with’this’ when dealing with real estate between families

Tax laws tend to view real estate transactions between families as gifts rather than transfers. This is to prevent the transfer of property disguised as a sale in order to avoid gift tax more than the capital gains tax. However, it is recognized as a sale if it proves that it is a normal trading activity with proof of income, such as a sale contract or financial transaction statement.

Don’t be relieved just because you have proved the sale. This is because it can be a trading price problem. Given the special situation of family-to-family real estate transactions, tax authorities may have reasonable doubts that they will buy and sell at a price that is excessively lower than the surrounding price in the hopes of reducing the capital gains tax.

Therefore, the range of transaction amount should be within 5% of the market price or 300 million won, whichever is lower, in the case of real estate transactions between families. If this is violated, the mutually agreed trading price is not recognized, and the capital gains tax is determined based on the market price (announced land price and published price).

For example, if you are dealing with an apartment worth 1 billion won, it is recognized as a general sale only when you sign a transaction contract between 950 million and 1.05 billion won. If you sold the same apartment to your family for 600 million won, this is not recognized. Capital gains tax is also charged based on 1 billion won.

In addition, if the price of a real estate transaction between family members is outside the range of 30% of the market price or 300 million won, gift tax is levied on the person who took advantage of the transaction. For a house with a market price of 900 million won, 630 million to 1.17 billion won is the normal trading area. If this house is sold for 500 million won, the buyer will gain about 400 million won, but since the tax law considers it to be a normal transaction up to 630 million won, a gift tax is imposed on 130 million won instead of 400 million won.

The opposite situation is also the same. If the seller made a profit of 500 million won by trading a house with a market price of 900 million won for 1.4 billion won, a gift tax of 230 million won will be levied on the seller based on the normal transaction amount range of 1.17 billion won.

◆ “No benefits due to donation or free rental”… Tax avoidance block dimension

If the real estate donated to the family is transferred within 5 years, the transfer tax is levied based on the acquisition value of the donor. However, the gift tax is not levied even if the apartment that the husband bought for 100 million won 5 years ago has risen to 500 million won. This is because the couple is tax-free up to 600 million won. After 5 years, even if a wife sells real estate for 800 million won, capital gains tax is imposed on the difference of 200 million won.

However, if a transaction is made within five years after receiving the gift, the carry-over tax regulation is applied, and the difference between the 100 million won acquired by the husband as the acquisition price, or 700 million won, must be paid. This is a rule to prevent evasion of capital gains tax by abusing the tax-free benefits donated between families.

Gift tax is also levied when real estate owned by parents is rented to children for free. Taxation applies when profits of 100 million won or more from free use of real estate for five years are subject to tax. The profit from free use is the value of the real estate value multiplied by the tax rate determined by Ordinance of the Ministry of Strategy and Finance, taking into account the one-year real estate usage fee. In addition, if rent is paid more than or equal to 30% less than the market price, you must pay gift tax.

The most important thing in real estate transactions between families is data that can objectively prove that money has actually flowed.

It is better to keep records through account transfer rather than cash transactions. If you borrow money from your family to pay for the sale, you need to leave the data that can objectively prove the facts, such as filling out a borrowing card and receiving a notarization.

In addition, even if you borrow it from your family, you must pay an appropriate amount of interest every month, and keeping proof of interest and principal payments will help you to quickly resolve any related problems in the future.

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