South Korea to Reform Capital Gains Tax for Homeowners

The South Korean government is reforming its capital gains tax to limit deductions to properties where owners actually resided ^[1].

These changes aim to curb tax avoidance and stimulate the housing market by ensuring tax benefits are not exploited by absentee landlords. By shifting the focus from ownership duration to actual residency, the government intends to prioritize genuine homeowners over speculative investors.

Under the new system, the previous long-term holding deduction will be renamed the long-term residence deduction ^[1]. This means deductions will only be granted for the periods a person actually lived in the property ^[1]. To prevent extreme tax shelters, the government will cap the maximum deduction at 10 billion won ^[1].

This cap follows instances of significant tax avoidance, such as a case in Gangnam, Seoul, where a tax deduction of 200 billion won was claimed after the sale of a house ^[1].

To support smaller homeowners, the basic residence deduction will increase from 2.5 million won to 25 million won per year ^[1]. These residence-based deduction rules are scheduled to become effective in 2029 ^[1].

Additionally, the government will provide a temporary window for those owning multiple properties. The surcharge for multiple-home owners will be eased for two years, covering 2028 and 2029 ^[1]. This measure is designed to create an exit strategy for investors to sell their additional holdings without facing prohibitive tax penalties.

Officials said the reforms will create a more transparent tax environment. The transition period allows the market to adjust before the stricter residency requirements take full effect in 2029 ^[1].