Compare rental tax savings with the tax cost of selling
This commercial building depreciation versus capital gains tax calculator helps an individual Korean landlord compare claiming depreciation with making no new claims. It connects annual rental income tax savings, accumulated depreciation and the higher capital gains tax that a reduced acquisition cost can create on disposal. Under Article 97(3) of Korea’s Income Tax Act, depreciation recognized or to be recognized as a business income expense must be reflected when determining acquisition cost for capital gains tax.
Keeping more cash during the rental period does not by itself establish a lifetime tax saving. The comparison also depends on the current progressive income tax rate, the expected disposal gain, the holding-period deduction and the value of receiving cash earlier. The yearly scenarios show these effects together instead of treating depreciation as a single cost-basis adjustment field.
Korean rules for an individual commercial landlord
The estimate assumes one registered commercial property with business-use appurtenant land held by an individual. Housing rental, the single-home exemption, companies, unregistered transfers, non-business land, mixed residential buildings and aggregation with other disposals require separate review. The tool uses a fixed 2026 Korean rule set throughout the projection.
What changes between the two scenarios?
Claim at your selected percentage
From 2026 through the sale year, the model applies the selected claim percentage within each year’s statutory allowance and the building’s remaining depreciable amount. It calculates income tax and local income tax savings, adds new depreciation to the accumulated balance and adjusts acquisition cost on sale.
Make no new claims
New building depreciation during the comparison period is set to zero. Depreciation already recognized before 2026 still reduces acquisition cost in this scenario. Choosing this comparison does not erase earlier tax deductions.
Earlier tax savings cannot be changed by today’s decision, so they are not added again to the projected benefit. The sensitivity comparison at 0%, 25%, 50%, 75% and 100% shows how the present value changes across those selected claim levels. The highest amount in this small comparison is not a global optimum across every permissible claim amount or a personalized tax recommendation.
Documents and input meanings
Acquisition cost and building share
Acquisition cost includes land and building, excluding recoverable VAT. Use the contract allocation or a reviewed allocation document to identify the building percentage. Land is not depreciated here. An unsupported building allocation distorts both current savings and future capital gains tax.
Structure, useful life and earlier depreciation
Check the building register, the reported useful life and the tax depreciation adjustment schedule. Earlier accumulated depreciation means the building depreciation recognized or to be recognized for tax purposes before the start of 2026. Do not substitute an accounting balance without checking any tax differences.
Annual rental net income and other income
Rental net income is income after expenses other than depreciation; it is not gross rent receipts. Enter other comprehensive income and annual income deductions separately to form the pre-depreciation tax base. Entering rental income that already deducts depreciation counts the same expense twice.
Sale date, price and separate disposal costs
Check acquisition and expected settlement dates to establish the holding period. Do not repeat costs already included in the depreciable acquisition basis as separate disposal expenses. The comparison assumes no other disposal in that year and availability of the full KRW 2,500,000 annual basic deduction.
The model assumes rental use starts on acquisition. Annual rental net income, other income and income deductions remain at the entered annual amounts throughout the projection. For the acquisition and sale years, enter the expected actual annual income amounts for those years. The calculator prorates the depreciation allowance by months of business use but does not automatically prorate the income inputs.
Business-use months count inclusive calendar periods and round an incomplete month up to one month. Under Framework Act on National Taxes Article 4 and Civil Act Article 160, acquisition on June 30 followed by sale on July 1 is one month of use. January 15 through February 14 is one month, while January 15 through February 15 is two months; where the corresponding day does not exist, the period ends on the last day of that month.
Building structure, useful life and statutory rates
Ordinary brick, block and timber structures
Ordinary brick, block, concrete and timber buildings generally use a standard 20-year life with a reported-life range of 15–25 years under the relevant structure class. Example statutory straight-line rates are 6.6% for 15 years, 5% for 20 years and 4% for 25 years.
Steel, reinforced-concrete and stone structures
The relevant steel, steel-reinforced concrete, reinforced-concrete and stone structures generally use a standard 40-year life with a 30–50-year range. Example straight-line rates are 3.4% for 30 years, 2.5% for 40 years and 2% for 50 years.
Article 64(1)(1) of the Income Tax Act Enforcement Decree specifies the straight-line method for buildings. Article 32 of the Income Tax Act Enforcement Rule applies the relevant provisions of Article 15 and Annexes 4 and 5 of the Corporate Tax Act Enforcement Rule. The calculation therefore uses the listed statutory rate instead of simply dividing building cost by useful life. Confirm the default useful life if none was reported and the continuing application of a life already reported; a favorable result does not permit an unrestricted annual change.
Special treatment in note 3 of Annex 5 for factories, warehouses and other specified structures is excluded. Separately accounted building equipment and shortened lives for used assets also require separate review. For mixed structures, verify the main structural class before choosing an ordinary range.
Annual tax savings, disposal tax and present value formulas
1. Annual allowance and income tax saving
Annual allowance = building acquisition basis × statutory straight-line rate × months of use ÷ 12. The claim applies the selected percentage and cannot exceed the remaining building basis. Income tax saving = progressive tax before the claim − progressive tax after the claim. Local income tax saving is estimated at 10% of that national tax difference under the standard rates.
2. Adjusted acquisition cost on disposal
Adjusted acquisition cost = original acquisition cost − earlier recognized depreciation − new depreciation in the comparison period. Capital gain = sale price − adjusted acquisition cost − separate disposal expenses. Both tax calculations apply the relevant holding deduction and basic deduction, so the additional tax is not necessarily accumulated depreciation multiplied by one tax rate.
3. Nominal effect and net present value
Nominal net effect = annual income tax, local tax and optional insurance effects − additional tax on disposal. Net present value = present value of those annual savings − present value of the extra disposal tax. With discount rate d and year-end period t from the 2026 baseline, each cash flow is divided by (1+d) to the power t. The end of 2026 uses t=1 and the end of 2027 uses t=2; actual income tax filing, disposal filing and insurance assessment dates are not modeled separately.
Progressive income tax is recalculated using the 6%, 15%, 24%, 35%, 38%, 40%, 42% and 45% brackets. This model recognizes a current tax benefit only within positive rental income and the pre-claim tax base. It stops the current benefit when those amounts reach zero and excludes loss offsets against other income and loss carryforwards. Low-income and loss situations can therefore need further tax analysis.
Holding deductions and short-term disposal rates
Table 1 in Article 95(2) of the Income Tax Act gives the ordinary long-term holding deduction: 6% after three complete years, increasing by two percentage points per year to a maximum 30% after 15 years. The deduction applies to a positive capital gain before the KRW 2,500,000 annual basic deduction is taken. For an ordinary commercial property subject to progressive rates, the additional gain caused by depreciation is also affected by this holding deduction.
A short holding period changes the rate calculation
For the ordinary commercial building and land scope used here, the short-term rate is 50% for less than one year and 40% for at least one but less than two years. Article 104(1) requires comparison with the ordinary progressive tax calculation and application of the larger tax amount. For a very large gain held for one to two years, progressive tax can exceed the simple 40% calculation. The estimate includes standard local income tax. Do not substitute residential short-term rates. Review the one-year, two-year and three-year holding boundaries separately.
A sale below the original purchase price can still produce a taxable gain after acquisition cost is reduced by depreciation. A zero tax amount in the no-new-claims scenario does not establish a zero tax amount in the claim scenario.
Worked example: a one-year comparison
The same KRW 10 million deduction has two tax effects
Assume acquisition on January 1, 2020 for KRW 1 billion, a 40% building share, a 40-year reported life and no earlier accumulated depreciation. Assume sale on December 31, 2026 for KRW 1.4 billion, annual rental net income of KRW 60 million and other comprehensive income of KRW 40 million. Income deductions, separate disposal expenses and the discount rate are zero, bookkeeping is used, the claim percentage is 100% and the insurance scenario is off. The 2026 claim is KRW 400 million of building basis × 2.5% = KRW 10 million.
Current saving: KRW 3,850,000
The comprehensive income tax base falls from KRW 100 million to KRW 90 million. National income tax falls by KRW 3.5 million, and the local tax saving is KRW 350,000. The combined current tax saving is KRW 3,850,000.
Extra disposal tax: KRW 3,872,000
Six complete holding years give a 12% long-term deduction. The capital gains tax base rises from KRW 349,500,000 to KRW 358,300,000. National tax increases by KRW 3,520,000 and local tax by KRW 352,000.
At a zero discount rate, the nominal net effect and net present value are both −KRW 22,000. Enabling the optional income-proportional insurance scenario would add KRW 813,480 for the KRW 10 million reduction. That additional scenario does not establish an actual NHIS bill reduction; contribution floors, ceilings and household circumstances still need review.
Step-by-step use and interpreting the result
Check the contract, building register and tax depreciation schedule for the acquisition date, land/building allocation, structure, reported useful life and earlier balance at the start of 2026.
Enter rental net income before depreciation, other comprehensive income and income deductions, then choose bookkeeping, estimated-income filing or income tax relief.
Enter the sale date, expected price and separate disposal expenses, and adjust the claim percentage. Confirm that acquisition-year and sale-year income inputs represent the expected actual annual amounts.
Compare tax alone with the insurance switch off first. A locally insured person can then enable the marginal insurance scenario to see how that additional assumption changes the result.
Read annual depreciation, savings, both adjusted acquisition costs, extra disposal tax, net present value and the claim-percentage sensitivity together.
Take the comparison and earlier tax records to a tax adviser to agree the current claim and the accumulated amount to reflect in the disposal filing.
A positive net effect favors new claims under the entered assumptions; a negative effect favors making no new claims. Discount calculations and won-level rounding can differ slightly from actual filing truncation. This comparison is not a final tax assessment. Substantial tax credits, exemptions or additional property disposals require a complete return-level calculation.
Break-even conditions and practical scenarios
Average national income tax saving rate
The break-even reference subtracts the present value of the insurance effect from the present value of additional disposal tax, then divides by the present value of tax-base reductions and the 1.1 local-tax factor. It is a reference for the average national tax saved, not a statutory bracket or a guarantee that being in a particular bracket makes claiming beneficial.
First break-even sale year
The model holds the expected sale price and sale month/day constant and compares sale years from 2026 through 2045. It reports the first non-negative net-effect year within that range. It does not guarantee a favorable result in all later years or a constant market sale price.
A landlord whose other income falls after retirement can examine the effect of a lower current progressive rate. Someone planning a near-term sale can change the gain and holding period to examine the tax cost of reducing acquisition basis. A long-term owner can compare a zero discount rate with positive rates to assess how strongly earlier cash availability affects the decision.
Filing branches, insurance assumptions and omission risks
Estimated-income filing and tax relief are separate branches
Buildings are excluded from deemed depreciation under Article 68(2) of the Enforcement Decree, so estimated-income filing produces no new building depreciation here. Income tax exemption or reduction can require mandatory depreciation under Article 68(1), so that selection stops the voluntary comparison. Earlier disallowed depreciation, loss relief and separate depreciation of capital improvements are not automatically calculated.
The insurance effect is an optional marginal scenario
The tool applies the 2026 income-related health rate of 7.19% plus the long-term care rate of 0.9448%, totaling 8.1348%, to the reduction in positive rental income. Long-term care is also described as approximately 13.14% of the health contribution. Income floors and ceilings, property, household aggregation, timing, reductions and subsequent expense feedback are excluded.
Omitting the cost-basis adjustment can understate tax
Failing to reflect depreciation in acquisition cost can understate capital gains tax. The ordinary underreporting penalty in Article 47-3(1)(2) of the Framework Act on National Taxes is 10% of the relevant underreported payable tax amount. Penalty relief, exemptions and late-payment charges require separate review. The tool does not calculate penalties; suspected omissions in earlier filings should be reviewed for correction.
Frequently asked questions
Does claiming depreciation always save money overall?
The extra tax on disposal can exceed the income tax and local income tax saved while renting the property. A low current income tax rate and a large future capital gain can make depreciation less attractive overall. Compare the claim percentage, sale date and net present value together.
Does estimated-income filing erase earlier depreciation?
No. Article 68(2) of the Income Tax Act Enforcement Decree excludes buildings from deemed depreciation under estimated-income filing. It does not reverse building depreciation previously recognized as an expense in a bookkeeping year. The earlier recognized amount reduces acquisition cost in both scenarios.
Does a 30-year useful life mean dividing cost by 30?
This calculator uses the statutory straight-line rates in Annex 4 of the Corporate Tax Act Enforcement Rule. The 30-year rate is 3.4%, which differs from simply dividing cost by 30. The 40-year rate is 2.5%. Confirm the building structure and the useful life already reported for tax purposes.
Can unclaimed depreciation be added freely in a later year?
The calculator does not carry ordinary unused annual depreciation allowances into a later year. The reported useful life and annual limit continue to apply. Earlier disallowed depreciation and subsequent tax adjustments require a separate review of the depreciation adjustment schedule.
Can an income-tax-exempt or reduced-tax business choose not to claim?
Mandatory depreciation under Article 68(1) of the Enforcement Decree must be reviewed first. Selecting the income tax relief option stops the voluntary claim versus non-claim comparison. Ask a tax adviser to verify the relief scope and any mandatory or deemed depreciation.
Is the insurance saving the actual NHIS bill reduction?
No. The optional amount is a marginal-effect scenario using the 2026 income-related rates. Income floors and ceilings, property contributions, household aggregation, assessment delays and contribution reductions are excluded. The actual bill may therefore change by a different amount.
Will every year after the first break-even year be favorable?
No guarantee is made. The tool holds the estimated sale price and 2026 rules constant and finds the first non-negative net effect among sale scenarios from 2026 through 2045. Short-term rates, holding deductions and the remaining depreciable amount can change together. Read the later scenarios as well.
What if I sell another property in the same year or the building includes housing?
That falls outside this complete single-transaction tax estimate. Other disposals can affect loss offsets, the annual basic deduction and progressive rates. Housing and mixed residential buildings need separate exemption and rate reviews. The model assumes one registered commercial property with business-use appurtenant land owned by an individual.
Official sources, rule date and next steps
Official primary texts were checked on . The current Income Tax Act edition has a July 1, 2026 heading date, with the relevant article commencement fields showing January 1, 2026. The Enforcement Decree edition checked is effective . The Income Tax Act and Corporate Tax Act Enforcement Rule editions are effective July 1, 2026; Annex 5 shows an amendment date of November 11, 2024. All future projections freeze the 2026 rates, deductions and insurance assumptions; they do not forecast enacted rules for 2027 or later.
Bring the depreciation schedule and sale plan together
Confirm the claim percentage, useful life and earlier recognized balance with a tax adviser, then carry the adjusted acquisition cost into your disposal filing records. For a single transaction, you can also consult the non-residential capital gains tax calculator. Check its input instructions so depreciation already subtracted from acquisition cost is not deducted twice.