Changes to Comprehensive Real Estate Holding Tax and Capital Gains Tax Under the Real Estate Tax Reform Plan

The core direction of the real estate tax reform proposal is to favor people who have actually lived in a home for a long time over those who have simply owned one for a long time. The comprehensive real estate holding tax would expand the basic deduction for single-home households while strengthening taxation on high-priced homes, and the capital gains tax would be restructured to provide a larger deduction for the period of residence than for the period of ownership.

This article analyzes the structure and expected impact of the system based on the details of the reform proposal provided. A tax reform proposal does not take effect immediately upon announcement, and tax rates, timing, and transitional measures may change during the National Assembly’s process of amending laws and revising enforcement decrees.

Taxes That Must First Be Distinguished

The direct targets of this reform proposal are not the comprehensive income tax, but the comprehensive real estate holding tax and capital gains tax.

• Comprehensive real estate holding tax: An annual property holding tax imposed on people who own homes and other real estate exceeding a specified amount as of June 1 each year.
• Capital gains tax: A tax imposed on gains generated from selling a home. Although it falls under the Income Tax Act, its calculation system differs from the comprehensive income tax applied to employment income, business income, and other income.
• Officially assessed value: An administrative value used as the basis for calculating property holding taxes, including the comprehensive real estate holding tax and property tax. It is not the same as the market value, which is the actual transaction price.
• Basic deduction: The amount first subtracted from the total officially assessed value of homes when calculating the comprehensive real estate holding tax. The entire amount exceeding the basic deduction does not become the tax itself.

Comprehensive Real Estate Holding Tax Reform Proposal: Expanded Deduction for Owner-Occupied Single Homes

According to the reform proposal provided, the current comprehensive real estate holding tax basic deduction of KRW 1.2 billion for single-home households would be raised to KRW 1.4 billion. The basic deduction for general taxpayers would remain at KRW 900 million.

If implemented as proposed, owner-occupants of single homes with officially assessed values of more than KRW 1.2 billion and at most KRW 1.4 billion may no longer be subject to the comprehensive real estate holding tax. In contrast, the tax burden on high-priced homes may increase due to adjustments to tax rates and the fair market value ratio.

The Comprehensive Real Estate Holding Tax Is Not Determined by Officially Assessed Value Alone

The comprehensive real estate holding tax is generally calculated in the following order.

1. Add together the officially assessed values of homes held by each taxpayer.
2. Subtract the applicable basic deduction.
3. Apply the fair market value ratio to determine the tax base.
4. Apply the tax rate for each tax base bracket.
5. Reflect overlapping property taxes, tax credits for elderly and long-term owners, and the cap on tax burden increases.

Therefore, even when officially assessed values are the same, the final tax amount may vary depending on the number of homes, household composition, ownership share, age, ownership period, and whether the owner actually resides in the home. The “two- to fivefold tax increase” mentioned in the reform proposal should be viewed as an estimate based on specific price and ownership conditions, rather than a result uniformly applicable to all high-priced homes.

The Criteria for Determining Actual Residence Are Crucial

If a deduction of KRW 1.4 billion applies to actual residents and KRW 900 million to non-residents, the following matters must be specifically defined by law or enforcement decree.

• Whether residence will be verified only as of the tax assessment date or whether residence for at least a specified period will be required
• What standard will be used when registered residence and actual place of living differ
• Whether temporary non-residence due to work, illness, education, or overseas assignment will be recognized
• How homes jointly owned by spouses or divided among household members will be treated
• Whether exceptions will be provided for inherited homes, temporary ownership of two homes, and low-priced homes in non-metropolitan areas

Until these criteria are finalized, an individual’s comprehensive real estate holding tax cannot be accurately calculated based solely on the “KRW 1.4 billion deduction for actual residents.”

Capital Gains Tax Reform Proposal: Shift from Ownership to Residence

Under the current special deduction for long-term ownership of a single home by a single-home household, those who meet specified requirements receive a deduction of 4% per year for the ownership period and another 4% per year for the residence period, up to a combined maximum deduction rate of 80%.

The reform proposal would replace this with a long-term residence income deduction and gradually reduce the deduction for ownership itself. According to the schedule provided, beginning in 2029, the ownership deduction would be 0%, while the residence deduction would be 8% per year, up to a maximum of 80%.

Although the maximum deduction rate itself would remain 80%, periods during which a home was owned but not occupied would no longer contribute to the deduction. Owners who did not actually live in the home due to long-term rental, residence abroad, or residence in another area may face a higher capital gains tax burden.

An 80% Deduction Rate Is Not the Same as an 80% Capital Gains Tax Reduction

A long-term ownership or long-term residence deduction is generally not a tax credit that directly subtracts 80% from the calculated tax. Because it deducts a specified amount from taxable capital gains, the actual tax savings rate varies depending on the acquisition price, necessary expenses, taxable capital gains on high-priced homes, basic deduction, and tax bracket.

The official legislative bill must also clarify what the proposed “deduction cap of KRW 2 billion or KRW 1 billion” limits. The outcome could differ significantly depending on whether it is a cap on capital gains eligible for the deduction or a cap on the deduction amount itself.

Expected Impact by Type of Taxpayer

Additional Capital Gains Tax on Multiple-Home Owners: Phased Relief for Two Years

Owners of multiple homes in regulated areas may be subject to an additional rate on top of the basic capital gains tax rate. The reform proposal provided would reduce this additional rate in 2027 and 2028 before returning to the standard additional tax rate from 2029.

Here, 20% or 30% does not mean a tax rate applied directly to the sale proceeds, but rather percentage points added to the basic tax rate. The reform proposal is also closer to phased relief in which the additional rate increases over time, rather than a complete two-year exemption from the additional tax.

Actual applicability may vary depending on whether the area is designated as a regulated area at the time of transfer, whether any homes are excluded from the home count, and whether the contract date or balance payment date is used as the applicable date.

Potential Changes If Implemented

1. Fewer Owner-Occupied Single Homes in the Mid-Price Range Subject to the Comprehensive Real Estate Holding Tax

If the basic deduction for single-home households rises to KRW 1.4 billion, some owner-occupied homes in the officially assessed value range of KRW 1.2–1.4 billion may be excluded from the comprehensive real estate holding tax. However, the outcome will vary depending on the choice of joint ownership, ownership of other homes, and household classification.

2. Tax Burden Concentrated on Owners of Ultra-High-Priced Homes

If the rates for the top tax base brackets and the fair market value ratio are raised together, the increase in tax liability may be greater for homes with higher officially assessed values. A decrease in the total number of taxpayers does not necessarily mean a decrease in total tax revenue.

3. Reduced Tax Benefits for Long-Term Ownership Without Residence

If capital gains tax deductions are concentrated on the residence period, deduction benefits will decline for homes held for a long period in anticipation of redevelopment or for asset ownership purposes without actual residence.

4. Potential Increase in Listings from Multiple-Home Owners in 2027–2028

The period of relief from the additional tax may incentivize multiple-home owners to sell their homes. However, the number of listings and the effect on prices will also depend on interest rates, the rental market, transaction volume, and future policy expectations, making it difficult to draw conclusions based solely on changes in tax rates.

Matters That Must Be Confirmed Before the Law Takes Effect

Before a tax reform proposal can apply to actual tax obligations, it must pass through announcement, submission of a government legislative bill, review and passage by the National Assembly, promulgation, and amendment of enforcement decrees. Before selling a home or deciding to separate a household or change registered residence, the following matters must be confirmed.

• Whether the amended law has passed the National Assembly and been promulgated
• The effective dates of the comprehensive real estate holding tax and capital gains tax, respectively
• Whether the applicable date is the contract date, balance payment date, or registration date
• Transitional measures recognizing existing ownership and residence periods
• Documents proving actual residence and the minimum residence period
• The precise legal meaning of the deduction cap
• Special provisions for joint ownership, inherited homes, temporary ownership of two homes, and similar cases
• Current regulated-area designations and determination of the number of homes

Estimated tax amounts in press releases or reform proposals are examples based on typical cases. Individual tax amounts must be calculated according to the final laws and regulations, actual acquisition price, necessary expenses, ownership and residence history, and household composition.