Exclusion of 1-Year Holding Period for Heavy Capital Gains Tax on Multiple Homes... Temporary Two-Home Owners Exempt from Tax if Selling Existing Home Within 2 Years

Ministry of Economy and Finance to Amend Income Tax Act Enforcement Decree
Capital Gains Tax on 1 Billion KRW Profit Reduced from 680 Million to 250 Million KRW...Top Capital Gains Tax Rate Cut from 82.5% to 49.5%
Abolition of Multi-Homeowners' Final Single-Home Recalculation System

Archive photo / Photo by Mun Ho-nam munonam@

[Asia Economy Sejong=Reporter Kwon Haeyoung] Starting from the 10th, when the Yoon Seok-yeol administration takes office, the capital gains tax surcharge on multi-homeowners will be suspended for one year. The system that recalculates the holding and residence period, which is a requirement for multi-homeowners to receive the capital gains tax exemption for one household one home, will also be abolished. For temporary cases of one household owning two homes due to moving, the previous period to sell the old home to qualify for the exemption will be extended from within one year after acquiring the new home to within two years. This reflects the new government's intention to normalize the real estate tax system, which had been distorted into a punitive measure aimed at curbing rapid house price increases.

The Ministry of Economy and Finance announced on the 9th that it will push forward with amendments to the Enforcement Decree of the Income Tax Act based on these points. A ministry official explained, "This is a measure to normalize the real estate tax system, which has been excessively used for real estate market management, in accordance with tax principles and to adjust the excessive tax burden on citizens to an appropriate level."

With this amendment to the Enforcement Decree, the capital gains tax surcharge applied to multi-homeowners will be exempted for one year going forward. According to the current Income Tax Act, when selling a home in a regulated area, two-homeowners are subject to an additional 20 percentage points on top of the basic tax rate (6~45%), and those owning three or more homes are subject to an additional 30 percentage points, but this surcharge will be excluded starting the next day. Accordingly, the highest tax rate will be significantly reduced from the previous 82.5% including local income tax to 49.5%. The special deduction for long-term holding (up to 30%), which applies from a holding period of three years or more, was previously excluded for multi-homeowners but will now be applied.

As a result, a three-homeowner who purchased an apartment in Seoul for 1 billion KRW in 2007 and currently has a market value of 2 billion KRW will see their capital gains tax reduced by 425.25 million KRW, from the current 682.8 million KRW to 257.55 million KRW, if they sell the apartment under this measure.

A ministry official said, "The excessive taxation on multi-homeowners for real estate market management purposes violated tax principles," and added, "This had caused a decrease in listings and market instability as an obstacle to home sales, but we expect that the reduction in burden will activate the release of listings."

The system that recalculates the holding and residence period for the one household one home capital gains tax exemption will also be abolished. Currently, multi-homeowners must sell all homes except one and then calculate the holding and residence period from the date they become a final single homeowner, and two years must pass. Going forward, regardless of the number of homes, if the actual holding and residence period is two years or more, the capital gains tax exemption can be applied from the date they become a final single homeowner.

The exemption period for temporary one household two homes due to moving will also be relaxed from the current one year to two years. Currently, to receive the exemption, the existing home must be sold within one year after acquiring the new home, but this period will be extended to two years (if both the old and new homes are in regulated areas). Also, currently, all household members must move into the new home to meet the exemption requirements, but this condition will be removed in the amended Enforcement Decree. If both the old and new homes are not in regulated areas, the exemption can be applied by selling the existing home within three years from the acquisition date of the new home, as before. This is a measure to prevent unintended harm caused by the sharp decline in housing transactions, where the old home cannot be sold within one year.

This amendment to the Enforcement Decree will apply to transfers from the 10th, when the new government takes office. The government plans to announce the legislative notice from the 10th to the 17th, hold a Cabinet meeting on the 24th, and promulgate it by the end of this month. Considering that the amendment is favorable to taxpayers, the Ministry of Economy and Finance intends to apply it retroactively from the date the new government takes office.

This content was produced with the assistance of AI translation services.