With "Excessive Capital Gains Benefits"... Multi-Homeowners Face Capital Gains Tax Bomb from 2023

Capital Gains Exceeding 1.5 Billion Won, Up to 50% Deduction Only

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Democratic Party of Korea is pushing for the passage of an amendment to the Income Tax Act that, starting in 2023, will calculate the holding and residence period for long-term capital gains tax deductions from the point when a multi-homeowner disposes of properties and becomes a single-homeowner.

Currently, multi-homeowners receive capital gains tax reductions on one property based on the holding and residence period, but going forward, the period during which they were multi-homeowners will not be recognized. This is interpreted as a measure to encourage multi-homeowners to put their properties on the market.

According to the Democratic Party on the 1st, Representative Yoo Dong-su plans to propose an amendment to the Income Tax Act on the 2nd that, starting in 2023, will calculate the conditions for applying the long-term capital gains tax deduction for multi-homeowners from the date they finally become single-homeowners.

The Democratic Party is known to be proposing this bill after reaching a consensus that public sentiment on real estate should reflect concerns about excessive capital gains.

A Democratic Party official told Asia Economy in a phone interview, "Except for exceptional cases such as inheritance and marriage, two-homeowners are regarded as speculative demand," explaining the background for strengthening capital gains tax.

The amendment includes provisions that, from 2023, the conditions for applying the long-term capital gains tax deduction on one property for multi-homeowners will be applied from the date they become single-homeowners.

Currently, if a multi-homeowner sells all but one property and becomes a single-homeowner, they can receive up to an 80% long-term holding special deduction based on the holding and actual residence period from the initial acquisition date of the remaining property. However, if the amendment passes the National Assembly, even if a multi-homeowner becomes a single-homeowner, the long-term holding special deduction will be recalculated from the time they become a single-homeowner.

At this time, the existing deduction rate based on residence period (40%) will be maintained, but taxation will differ according to the holding period based on capital gains. If the capital gains are 500 million KRW or less, the holding period deduction rate is 40%; for 500 million to 1 billion KRW, 30%; for 1 billion to 1.5 billion KRW, 20%; and for over 1.5 billion KRW, 10% will be applied.

For example, currently, if capital gains exceed 1.5 billion KRW, up to an 80% deduction can be received, but after the amendment passes the plenary session of the National Assembly, only up to 50% can be deducted.

The amendment also includes provisions that, even for single-homeowners who newly acquire a property, if capital gains exceed 1.5 billion KRW, the long-term holding special deduction rate will be reduced by up to 30 percentage points.

Meanwhile, the threshold for high-priced homes, which is the basis for capital gains tax reduction, has been raised from the current 900 million KRW to 1.2 billion KRW. The raised threshold will apply to new home acquisitions after the law is enacted.