Selling Property in Korea: U.S. Capital Gains Tax Explained
한국 부동산 매도 시 미국 양도소득세 — 환율 메커니즘 정확히 이해하기 2026

Overview — Worldwide Gain, Calculated in USD 전세계 양도소득 — 달러로 계산

A U.S. tax resident who sells Korean real estate must report the resulting capital gain on the U.S. return, calculated in USD using the exchange rates on the purchase and sale dates — regardless of whether Korea already taxed the gain, whether the property was inherited, or whether Korea's own 1세대1주택 exemption eliminated Korean tax on the sale entirely.

The Currency Mechanism — How It Actually Works 환율 메커니즘 — 실제 작동 방식

Because the purchase price and sale price are each converted to USD using the exchange rate on their respective transaction dates, currency movement between purchase and sale changes the USD-calculated gain relative to the KRW gain. The direction of this effect depends entirely on which way KRW moved — it is not a one-directional phenomenon that always inflates the U.S. gain.

Worked Example — KRW Weakens (1,150 → 1,350)

Calculating the USD Basis and Proceeds 달러 기준가액 및 처분가액 계산

• Basis = purchase price + acquisition costs + capital improvements, each converted at its own transaction-date rate. Korean 취득세/등록세 (acquisition/registration tax) and 중개수수료 (broker commission) paid at purchase are added to basis — converted at the purchase-date rate, not a later rate.
• Capital improvements (not repairs) increase basis — converted at the rate prevailing when each improvement was paid for, which may span many different dates and rates for a long-held property.
• Sale proceeds are reduced by selling expenses(broker commission on sale, certain transfer-related costs) before computing the gain — converted at the sale-date rate.
• If the property was ever a rental, basis must be reduced by accumulated depreciation (allowed or allowable) before calculating the gain — see Section 5.

Holding Period — U.S. Rules, Not Korean 보유기간 — 미국 규정 적용

• Held more than 12 months: long-term capital gain — taxed at 0%, 15%, or 20% federal rates depending on total taxable income (2026 thresholds).
• Held 12 months or less: short-term capital gain — taxed at ordinary income rates, up to 37%.
• The holding period runs from the original purchase date — including years held while the owner was a non-U.S.-resident, if the owner later becomes a U.S. tax resident and the property is sold afterward. A property purchased in Korea 15 years before the owner's move to the U.S. and sold 2 years after the move easily qualifies for LTCG treatment.
• Korea's 장기보유특별공제 (long-term holding special deduction) — which can reduce the Korean taxable gain by 30% or more for long-held properties — has no U.S. equivalent and does not reduce the U.S.-calculated gain.

Depreciation Recapture — Mandatory 감가상각 재계산(recapture) — 의무 사항

• Unrecaptured §1250 gain(the portion of gain attributable to depreciation taken on real property) is taxed at a maximum federal rate of 25% — higher than the standard 0%/15%/20% LTCG rates, though still capped below ordinary income rates.
• Korean tax paid does not offset U.S. recapture tax specifically — the FTC is calculated against the total U.S. tax on the gain (including the recapture portion), using the general FTC limitation mechanics, not as a separate item-by-item credit.

Korean 1-House Exemption vs. U.S. §121 한국 1주택 비과세 vs. 미국 §121 공제

Foreign Tax Credit for 양도소득세 양도소득세 외국납부세액공제

Inherited Korean Property — Stepped-Up Basis 상속받은 한국 부동산 — 상속 시점 기준가액

• U.S. basis = fair market value at the date of inheritance(or alternate valuation date in limited cases) — converted to USD using the exchange rate on that date, not the original purchase price paid by the deceased.
• This "stepped-up basis" rule applies regardless of Korean inheritance tax treatment — Korea's own inheritance tax (상속세) is a separate matter from the U.S. basis calculation, and Korean inheritance tax paid is not itself creditable against U.S. capital gains tax (though it may be relevant to U.S. estate/gift tax analysis in a separate context for U.S. persons receiving foreign inheritances).
• The holding period for LTCG purposes generally restarts at inheritance for purposes of the basis, though inherited property typically automatically qualifies for long-term treatment regardless of how long the heir personally holds it before selling.
• Form 3520 reporting may be required for the inheritance itself if it exceeds the applicable threshold for gifts/bequests from foreign persons — a separate reporting matter from the eventual capital gain on sale.

Step-by-Step Process 단계별 절차

• Step 1 — Gather documents: 매매계약서 (purchase contract), sale contract, closing statements, Korean 양도세 신고서, Korean tax payment receipts, and rental history if the property was ever rented.
• Step 2 — Convert purchase and sale prices to USD using the exchange rate on each respective transaction date — never a single rate for both legs.
• Step 3 — Calculate the U.S. gain: Sale proceeds (USD) − adjusted basis (USD, including acquisition costs and improvements, minus any accumulated depreciation).
• Step 4 — Apply depreciation recapture if the property was ever rented, using the allowed-or-allowable standard regardless of what was actually claimed in the past.
• Step 5 — Determine LTCG vs. STCG based on the U.S. holding period from the original purchase (or inheritance) date.
• Step 6 — Claim the Foreign Tax Credit for the actual Korean 양도소득세 paid, Form 1116, passive basket.
• Step 7 — File FBAR/FATCA if sale proceeds passed through or remain in Korean accounts exceeding the applicable thresholds.

5 Fully Computed Examples 실제 계산 사례 5개

Common Mistakes 자주 발생하는 오류

• 1 Assuming KRW depreciation against the dollar always inflates the U.S.-reported gain. The actual effect runs the opposite way: KRW weakening reduces the USD value of sale proceeds relative to a flat exchange rate, which generally produces a smaller — not larger — USD gain relative to the Korean won gain. KRW strengthening is what inflates the USD gain.
• 2 Using a single exchange rate for both the purchase and sale legs of the calculation. Each leg must use its own transaction-date rate; using one rate for both eliminates the currency component entirely and produces an inaccurate result in either direction.
• 3 Applying Korea's 장기보유특별공제 (long-term holding deduction) to reduce the U.S.-calculated gain. This Korean-specific deduction has no U.S. equivalent; the U.S. gain calculation uses its own holding-period rules (simply LTCG vs. STCG) without any comparable percentage reduction for long holding periods.
• 4 Assuming Korea's 1세대1주택 exemption automatically extends to the U.S. return. The U.S. has its own, narrower exclusion (IRC §121) requiring 2 years of personal use as a primary residence within the last 5 years — most Korean rental or long-vacated properties do not qualify even when Korea's exemption fully applied.
• 5 Not applying depreciation recapture because depreciation was never actually claimed in past years. The "allowed or allowable" standard requires basis reduction (and recapture at sale) for depreciation that should have been claimed, regardless of whether it was.
• 6 Crediting Korean 취득세, 등록세, 중개수수료, 재산세, or 종부세 as a Foreign Tax Credit. Only 양도소득세 (and its associated 지방소득세) are creditable. The others either adjust basis/proceeds or are simply not relevant to the capital gain calculation at all.
• 7 Using the original purchase price as basis for inherited property. Inherited property receives a stepped-up basis equal to fair market value at the date of inheritance (converted to USD at that date's rate) — not the deceased's original purchase price.
• 8 Not splitting the holding period or income into pre- and post-U.S.-residency portions when relevant. While the full holding period (even pre-residency years) generally counts for LTCG/STCG determination, the income recognition itself — and any depreciation recapture — applies only to the period the property was held while the owner was a U.S. tax resident, for properties where residency began partway through ownership.

Hanmi CPA Insight