Navigating Dual Taxation: Korean Apartment Owned by a U.S. Resident
- yunseo sung
- Feb 18
- 4 min read
Updated: Feb 22
Yunseo Sung (US CPA and Korean CTA)
When your life spans two countries, tax issues can become complex—especially with real estate. In this post, we explore the story of one client, Jane, who faced unexpected tax challenges after moving from Korea to the U.S.
Case Background
One of my clients, Jane, lived in Korea for many years and owned an apartment that qualified for the “1세대1주택” tax exemption. This exemption means that, as a resident, capital gains from the sale of her apartment would not be taxed—up to a sale price of 1.2 billion KRW (any amount exceeding that is taxable). However, five years ago, Jane moved to the United States and is now considered a non-resident for Korean tax purposes, even though she still owns her Korean apartment.
Korean Tax Implications
Loss of the Tax Exemption
While Jane was a resident, her apartment enjoyed the “1세대1주택” tax exemption. Under this rule, capital gains from the sale of her apartment would not be taxed up to a sale price of 1.2 billion KRW. Once she became a non-resident, she no longer qualifies for this exemption. If she sells her apartment today, she may be subject to capital gains tax (6%-45%) in Korea on the entire gain—even on the portion that would have been exempt if she had remained a resident.
Special Exemption for Emigrants
If you leave Korea and own only one home at the time of departure, you can still receive the 1세대1주택 tax exemption by selling your property within 2 years of leaving—provided you secure the required documentation under the Overseas Emigration Act. Unfortunately, Jane is not eligible for this exemption since too much time has passed.
Taxation Under the U.S.-Korea Tax Treaty
According to Article 15 of the U.S.-Korea tax treaty, income—including gains—from the disposal of real estate is taxable in the country where the property is located. Therefore, even though Jane is now a U.S. resident, any gain from selling her Korean apartment will be taxed in Korea.
Timing and Exit Considerations
For example, if Jane had sold her apartment while she was still a resident—or within 2 years after leaving Korea—she would have benefited from the tax exemption up to 1.2 billion KRW. Now, as a non-resident, her sale triggers a taxable event on the entire gain, increasing her overall tax burden.
U.S. Tax Implications
Worldwide Income Reporting
As a U.S. tax resident, Jane must report her worldwide income to the IRS. This includes any capital gains from the sale of her Korean apartment. In the U.S., the sale of property is subject to capital gains tax. Since Jane held her property for more than one year, her gains qualify as long-term capital gains, which are taxed at favorable rates ranging from 0% to 20%.
Foreign Tax Credit
The U.S. tax system offers a foreign tax credit to help prevent double taxation by offsetting U.S. tax liability with taxes paid to Korea on the same gain. However, the credit is limited to the amount of U.S. tax due on that income. If the Korean tax exceeds Jane’s U.S. liability, the excess cannot be claimed—resulting in effective double taxation on the excess amount.
Key Considerations for Dual Taxpayers
Dual Residency is Complex: Jane’s case shows that moving countries isn’t just about starting a new life—it also means navigating two different tax systems. Even though her apartment once qualified for a tax exemption in Korea (up to 1.2 billion KRW), her change in residency now exposes her to full capital gains tax in Korea.
U.S. Reporting Requirements: As a U.S. citizen, Jane must file annual U.S. tax returns reporting her worldwide income—including any gains from foreign property—even though she is now a non-resident for Korean tax purposes.
Utilizing the Foreign Tax Credit: While the foreign tax credit can help mitigate the impact of being taxed in both countries, it’s limited to the U.S. tax liability on that income. If Korean taxes exceed her U.S. liability, the excess results in double taxation.
Professional Guidance is Essential: Navigating the tax systems of two different countries can be challenging. In Jane’s case, had she consulted a professional either before leaving Korea or within two years after immigrating to the U.S., she could have sold her property within that period to benefit from the 1세대1주택 tax exemption—or at least paid minimal taxes in Korea. Working with tax professionals who understand both Korean and U.S. tax laws is crucial for developing effective strategies and ensuring compliance.
Final Thoughts
Jane’s situation isn’t unique. Many individuals who move internationally face similar challenges with assets they leave behind. Dual taxation issues underscore the importance of thorough tax planning when your life spans more than one country. Whether you’re considering selling your property or simply want to understand your tax obligations, staying informed and working with experienced professionals is key.
Disclaimer: This post is for informational purposes only and does not constitute tax advice. Please consult a qualified tax professional for advice tailored to your specific circumstances.
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