Landlords Raising Jeonse or Monthly Rent Within 5% Considered as Owner-Occupied for 2 Years... Capital Gains Tax Benefits When Selling Home [6·21 Real Estate Measures]

[Expansion of Tax Benefits for Cooperative Landlords]
Capital gains tax exemption even without actual residence... Multi-homeowners eligible if only one house at sale time
Up to 80% special deduction benefit
Abolishment of rental housing official price under 900 million KRW requirement
Extension of deadline until 2024
Relaxation of mortgage loan housing disposal obligation

[Asia Economy Sejong=Reporter Kwon Haeyoung] 'Win-win landlords' who raise rent by no more than 5% until the end of 2024 will receive capital gains tax exemption benefits without fulfilling the two-year actual residence requirement. As the two-year anniversary of the implementation of the 'Lease 3 Acts' approaches in August, landlords who have not been able to raise rent by more than 5% at once will be allowed to increase rent simultaneously, causing signs of instability in the rental market. In response, the government has unveiled a bold capital gains tax exemption benefit card for win-win landlords. While the previous administration forcibly restricted landlords from raising rent, accumulating factors for rent increases, the new government is offering 'carrots' to landlords to encourage the release of private rental units and stabilize the rental market.

According to the 'Lease Market Stabilization Measures and Q3 Real Estate Normalization Tasks' announced by the government on the 21st, win-win landlords who sign new lease contracts with rent increases within 5% compared to the previous contract are considered to have fulfilled the two-year actual residence requirement for capital gains tax exemption in regulated areas. Currently, the actual residence recognition period is only one year, providing only partial benefits, but this will be extended to two years. This is expected to reduce side effects such as landlords who have never lived in the property evicting tenants to meet capital gains tax exemption requirements, thereby reducing rental supply and increasing rent prices.

By being considered to have fulfilled the two-year actual residence requirement, win-win landlords will also be eligible for the long-term holding special deduction (up to 80%) for single-home owners when selling their homes in the future. The long-term holding special deduction is a system that deducts capital gains tax by up to 80%, including 40% for holding and 40% for residence, based on the period of ownership and residence of a single-home owner.

The recognition requirements for win-win rental housing will also be significantly relaxed. Currently, landlords must be single-home owners at the start of the lease and the house price must be 900 million KRW or less based on the publicly announced price to be recognized as win-win rental housing. However, going forward, even if the landlord is a multi-home owner at the time of the lease contract, as long as they are a single-home owner when selling the rental housing later, they can receive capital gains tax exemption and long-term holding special deduction benefits without fulfilling the two-year residence requirement. The housing price requirement for rental housing will be completely abolished.

A government official explained, "This is a measure to prevent a chain of tenant evictions during the self-move process to fulfill the actual residence obligation for capital gains tax and to induce restraint on rent increases."

The expansion of support for win-win landlords applies to lease contracts signed from the first implementation date of the system on December 20, 2021, through December 31, 2024. The government plans to revise the Enforcement Decree of the Income Tax Act next month.

To reduce the housing cost burden for non-homeowners living in rental housing, tax benefits will also be expanded. The government will raise the monthly rent tax credit rate for non-homeowner household heads from the current 10% to 15% for those with total annual income of 70 million KRW or less, and from 12% to 15% for those with total annual income of 55 million KRW or less. This will apply starting from this year's monthly rent. The annual tax credit limit remains at 7.5 million KRW.

The income deduction for principal and interest repayment on rental deposit loans, currently capped at 3 million KRW annually with a 40% deduction rate, will be expanded to a 4 million KRW limit.

Additionally, the target for the low-interest 'Beotimmok Jeonse Loan' supporting low-income tenants will be expanded. Currently, loans up to 120 million KRW are provided for housing with deposits of 300 million KRW or less in the metropolitan area. Going forward, this will be changed to housing with deposits of 450 million KRW or less and loans up to 180 million KRW, increasing both the support target and loan limit.

Furthermore, the housing price requirement for exemption from an additional 20% corporate tax on rental housing transfers will be raised from the current 600 million KRW to 900 million KRW. The special long-term holding deduction period for capital gains tax on construction rental housing leased for more than 10 years will be extended from the end of this year to the end of 2024.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said, "From August this year, lease contracts with rent increases of 5% or less under the Lease 2 Acts from two years ago will expire sequentially, and with overlapping seasonal demand in autumn, tenant burdens before moving are expected to increase." He added, "The government will proactively respond to instability factors in the lease market in the second half of the year through tax, financial support, and supply expansion." He also stated, "Regarding the Lease 3 Acts, we will seek reasonable improvement measures considering minimizing market confusion and contributing to tenant housing stability, and build public consensus. We will continue to identify and promptly execute necessary tasks for housing stability for low-income households."

The government will also improve the disposal and move-in requirements for obtaining mortgage loans to purchase new homes in regulated areas.

The deadline for disposing of existing homes will be relaxed from the previous six months to two years, and the obligation to move into the new home will be abolished. This is to normalize excessive loan regulations introduced earlier. Previously, in May, the government extended the disposal deadline for existing homes for temporary two-home owners' capital gains tax exemption from one year to two years, balancing this measure. The government plans to revise banking supervision regulations and other financial sector supervisory regulations in the third quarter to ease disposal and move-in obligations for mortgage loans in regulated areas.

Kim Soyoung, Vice Chairman of the Financial Services Commission, said, "In balance with the capital gains tax exemption requirements for temporary two-home owners, the existing home disposal obligation has been relaxed to two years and the new home move-in obligation abolished. This improvement will prevent situations where homebuyers have to forcibly move into newly purchased homes within six months to fulfill disposal and move-in agreements."