Korean government tax authorities are examining a proposed cap on long-term capital gains tax deductions for single-home owners, following recent policy discussions on the 26th and 27th. National Tax Service Commissioner Lim Gwang-hyun revealed through social media on the 26th that 90% of 2024 long-term holding deduction benefits went to Seoul, with 78.6% concentrated in Gangnam's three districts and Yongsan-gu. The proposed reform aims to shift deductions from simple ownership duration to actual residence duration, with simulations testing a 1 billion won deduction cap that would primarily affect ultra-high-value properties in Seoul's premium districts.
President Lee Jae-myung Calls for Residence-Based Deduction Reform
President Lee Jae-myung has stated on multiple public occasions that "it is not reasonable to reduce capital gains tax simply because of long-term ownership, and long-term residence deductions should be distinguished from simple holding deductions." Tax authorities have conducted detailed tax burden simulations by transfer price and capital gains, with the deduction cap proposal in mind. The discussions gained momentum following specific statistical evidence and expert recommendations presented in recent days.
National Tax Service Data Shows 90% of Benefits Concentrated in Seoul
National Tax Service Commissioner Lim Gwang-hyun pointed out the regressive nature of the current system on the 26th through social media, revealing that 2024 long-term holding deduction benefits were heavily concentrated in Seoul. Within Seoul, 78.6% of benefits went to Gangnam's three districts and Yongsan-gu. At a real estate policy public debate held on the 27th and chaired by the Prime Minister, Professor Kang Seong-hoon of Hanyang University presented arguments for establishing deduction caps on ultra-high-value homes.
Proposed 1 Billion Won Cap Would Target High-Value Properties
According to calculations commissioned by Yonhap Infomax to tax accountant Choi Wang-kyu, a 10 billion won deduction cap would directly affect single-home owners meeting 10-year residence requirements (80% deduction rate) when taxable capital gains exceed 12.5 billion won. Single-home owners receive tax exemptions up to 12 billion won in transfer price, with taxes applied only to the portion exceeding this threshold. For a 30 billion won transfer price, the cap would apply precisely when the property was acquired 10 years ago for 9.1666 billion won or less. For a 50 billion won transfer price, the threshold is 33.5526 billion won or less in acquisition cost. Tax accountant Choi Wang-kyu stated that "areas with capital gains large enough to hit the long-term holding deduction cap are limited to Gangnam's three districts and Yongsan-gu even within Seoul," adding that "if the deduction cap is actually introduced, it is likely to function as a pinpoint regulation on ultra-high-value homes in these areas."
Joint Ownership Treatment Emerges as Key Implementation Issue
The treatment of jointly-owned properties by married couples has drawn attention from market participants. Since capital gains tax operates on a per-person basis, joint ownership by couples could circumvent a deduction cap if designed as 1 billion won per person, resulting in a total 2 billion won cap per property. Tax industry observers suggest the reform may impose a total 10 billion won cap per property rather than per individual. Tax accountant Choi Wang-kyu explained that "when applying the current 12 billion won tax exemption standard for single homes, calculations are based on the entire property value, not per person," noting that "setting the long-term holding deduction cap at 10 billion won per property would align with the existing capital gains tax structure."
FAQ
Why is the Korean government considering a cap on long-term capital gains tax deductions?
National Tax Service data revealed that 90% of 2024 long-term holding deduction benefits went to Seoul, with 78.6% concentrated in Gangnam's three districts and Yongsan-gu, demonstrating what Commissioner Lim Gwang-hyun described as the regressive nature of the current system. President Lee Jae-myung has stated multiple times that deductions based solely on ownership duration are not reasonable and should be distinguished from residence-based deductions.
How would joint ownership by married couples be treated under the proposed deduction cap?
Tax industry observers suggest the reform may impose a 10 billion won cap per property rather than per person, as a per-person cap of 1 billion won would allow jointly-owned properties to receive 2 billion won in total deductions. Tax accountant Choi Wang-kyu noted that the current 12 billion won tax exemption for single homes is calculated based on total property value rather than per individual, suggesting the deduction cap would follow the same structure.
