Discussions on reforming the real estate tax system are expected to intensify following the June 3 local elections. The government is considering changes to the long-term ownership special deduction and property taxes, suggesting a shift in focus from the concept of a "single, valuable home" to one that emphasizes "long-term residency."
According to the real estate industry on June 7, ahead of the Ministry of Economy and Finance's tax reform proposal set for July, discussions are underway regarding the revision of the long-term ownership special deduction (long-term deduction) and potential increases in property taxes. Experts predict that the core criteria for taxation may soon shift from the duration of home ownership to actual residency.
In April, independent lawmaker Choi Hyuk-jin, a member of the National Assembly's Legislation and Judiciary Committee, introduced a bill aimed at increasing the deduction rate based on actual residency duration, known as the "residency-focused long-term ownership special deduction reform bill."
The proposed amendment seeks to reduce the weight of deductions based on ownership duration while expanding benefits related to actual residency. If passed, the law is expected to take effect on January 1, 2027. Currently, homeowners with a single property can receive deductions of up to 40% each for ownership and residency periods, allowing for a maximum deduction of 80% on capital gains.
As a result, the market is evaluating the shift in the focus of real estate taxation from a "single, valuable home" to "long-term residency." Previously, the strategy of consolidating multiple properties into one was a common tax-saving approach, but this change suggests that actual residency history may become a more significant criterion than the number of homes owned.
The discussions surrounding the long-term deduction reform are rooted in equity concerns. There have been ongoing criticisms that a homeowner with a single high-value property in a prime area of Seoul may receive greater tax benefits than a multi-property owner in less desirable locations.
However, there are also significant concerns regarding the proposed changes to the long-term deduction. Originally designed as a measure to curb speculation, the long-term deduction was implemented to alleviate excessive tax burdens arising from inflation and nominal value increases during prolonged asset ownership. Critics warn that overly stringent residency requirements could lead to a decrease in property transactions.
The impact on the rental market is also a variable to consider. If landlords are required to demonstrate actual residency to maintain long-term deduction benefits, this could lead to a reduction in rental supply, potentially driving up rental prices or increasing monthly rent burdens.
Additionally, properties subject to increased capital gains tax for multi-property owners are also limited in their eligibility for long-term deductions, creating a dual burden of reduced deductions and higher tax rates.
Revisions to property taxes are another area of interest. Direct increases to comprehensive real estate taxes and property taxes could provoke significant tax resistance, prompting discussions about alternative taxation methods such as adjusting the fair market value ratio, aligning public property prices with market realities, or segmenting tax brackets.
Meanwhile, transaction taxes, including acquisition taxes, are likely to move in a direction of easing. The current administration's real estate tax policy is summarized as "strengthening property taxes while reducing transaction taxes," which may include considerations for easing acquisition taxes for multi-property owners.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.