50 Million Won to 200 Million Won... Capital Gains Tax to Quadruple If Long-Term Holding Deduction Is Revised

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President Lee Jaemyung has indicated a gradual and phased abolition of the Long-Term Ownership Special Deduction (hereafter, Long-Term Deduction) for capital gains tax. If the deduction benefit based on the holding period is eliminated, the capital gains tax burden for single-home owners is expected to increase by about four times compared to the current level.

According to a simulation conducted by The Asia Business Daily on April 20 in consultation with Woo Byungtak, a senior expert at Shinhan Bank’s Premier Pathfinder, if an apartment purchased for 1.5 billion won is held and occupied for 10 years and then sold for 3 billion won, the current system (with an 80% Long-Term Deduction) would require a capital gains tax payment of approximately 52.26 million won. However, if the benefit based on the holding period (40%) is excluded and only the deduction rate based on the period of residence (40%) is applied, the capital gains tax payable would rise to 208.79 million won, about four times higher.

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Woo explained, “If there is an official announcement that the revised tax system will take effect from a certain point in time, regions with concentrations of high-priced homes are likely to see a strong movement to put properties up for sale.”

The Long-Term Deduction is a system that provides a partial deduction on capital gains if a home is held for a certain period. Under the current system, when a single household sells a home worth more than 1.2 billion won, if both the holding period and the period of residence each exceed 10 years, a deduction of up to 40% each (maximum 80%) can be applied. The deduction rate is applied at 4% per year from at least 3 years of holding and 2 years of residence, respectively. Until 2020, up to 80% deduction was possible solely based on the holding period, but since 2021, the requirements for holding and residence have been separated.

Previously, President Lee stated on the social media platform X (formerly Twitter), “The Long-Term Deduction for capital gains tax is a system that significantly reduces tax simply for long-term holding, regardless of actual residence,” and added, “It is unreasonable to grant tax reductions even to those who are not residing in the property but are only pursuing capital gains.”

Some interpret this as an intention to restructure the Long-Term Deduction to focus on ‘residence requirements.’ If the benefit based on the holding period is abolished, only genuine single-home residents would be eligible for the maximum 40% deduction.

Among the broader ruling party, there are discussions to abolish the Long-Term Deduction entirely and limit the lifetime tax deduction to 200 million won. Eleven lawmakers from the progressive party, including Assemblyman Yoon Jongoh, have sponsored an amendment to the Income Tax Act containing this proposal. If this amendment passes, the owner of an apartment purchased for 1.5 billion won and sold for 3 billion won would receive only a 200 million won tax deduction and would be required to pay 155.11 million won in capital gains tax.

Experts believe that if the Long-Term Deduction is revised to focus on actual residents of a single home, it will impact the supply of homes on the market. Yang Jiyeong, a senior researcher at Shinhan Investment Corp., explained, “If actual single-home residents can no longer benefit from the holding-based deduction, the incentive to own homes for the long term will disappear.”

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