How to File The House And Land Transactions Income Tax Return upon Selling The Inherited House And Land Due to Inability to Repay The Inherited Mortgage?
Ms. Lee in Kaohsiung called to inquire about how to file the house and land transactions income tax return for selling the house and land in September 2021 to repay the bank loan as she was unable to repay the loan of the house and land her father bought in 2017 and she inherited in October 2019?
National Taxation Bureau of Kaohsiung, Ministry of Finance said that when an individual inherits a house and land and the decedent's outstanding debt of mortgaged house and land from a financial institution, if the balance of the debt exceeds the assessed current value of the house and the assessed current land value at the time of inheritance, and the actual repayment is afforded by the said heir, the additional burden arising from inheriting the house and land may be deducted from the income of the sale of the house and land. In addition, when the outstanding debt is inherited, if the sale of the house or land is made within five years after the inheritance due to lack of funds to repay the principal and interest on the outstanding debt, it is due to involuntary factors such as transfer of job, involuntary separation or other as stated in Item 5, Subparagraph 1, Paragraph 3, Article 14-4 of the Income Tax Act, and thus the 20% tax rate shall apply.
For example, in 2019 taxpayer Lee inherited the house and land her father purchased in 2017 (the total current value of the house and land was NT$3 million at the time of inheritance) and inherited the balance of her father's loan of the mortgaged house and land for the amount of NT$6 million, and sold the house and land for NT$10 million in 2021 (assuming necessary expense of NT$300,000, no price index adjustment for the period from 2019 to 2021, and total amount of land value increment of NT$1 million). The new house and land transactions income tax regulations are applicable to taxpayer Lee, and the taxable income of the house and land transaction is calculated as follows:
(A)House and land transactions income=Sale price of NT$10 million - Current value of the house and land of NT$3 million upon inheritance - NT$0.3 million = NT$6.7 million；
(B)Additional burden of acquiring the house and land upon inheritance = Actual loan balance of NT$6 million - Current value of the house and land of NT$3 million upon inheritance = NT$3 million
(C)Taxable income = (A) House and land transactions income of NT$6.7 million - (B) Additional burden of NT$3 million - Total amount of land value increment of NT$1 million = NT$2.7 million
Tax payable = Taxable income x applicable tax rate = NT$2.7 million x 20% = NT$540,000
The Bureau reminded taxpayers that the aforementioned regulations on additional burden deduction for house and land transactions does not apply to the loans secured by the house and land to financial institutions in order for individuals to guarantee their own debts after they have inherited the house and land. If the public still have any questions, please call the toll-free number: 0800-000-321 or contact the jurisdictional Bureau's branch or office.
Contact: Ms. Lee, the Revenue officer of Second Examination Division
TEL: 07-7256600 ext.7257
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=91e07b39f5c44345b54ce8461d3daa5a