[Taemin Ryu's Real Estate A to Z] Deregulation of Adjustment Areas... Can the 'Tax Bomb' Be Avoided?

No '2-Year Residency' Required for New Acquisitions
Capital Gains Tax Exemption for Ownership Over 2 Years

[Asia Economy Reporter Ryu Tae-min] The government has decided to lift the designation of all local areas except Sejong City as regulated areas starting from the 26th. In addition, areas in the metropolitan region such as Paju, Dongducheon, Anseong, Pyeongtaek, and Yangju will also be removed from the regulated areas, drawing significant attention from buyers regarding the effects of deregulation. (Source: Real estate tax and tax-saving solution expert, Lee Seon-gu, CEO of Sellimon)

Once an area is deregulated, changes occur in tax regulations. For example, for a single homeowner, if they sell a house located in a regulated area after residing there for more than two years, they can benefit from capital gains tax exemption (tax applies only to the portion exceeding 1.2 billion KRW in sale price). However, if a house is newly acquired in an area that has been deregulated, the 'two-year residency requirement' does not apply; as long as the house is held for more than two years, the capital gains tax exemption for a single homeowner applies upon sale. However, if the area was regulated at the time of acquisition, the two-year residency requirement must still be met even if the area is deregulated at the time of sale.

Capital gains tax surcharges on multi-homeowners are also excluded. If a multi-homeowner holding two or more houses sells a house located in a regulated area, a higher capital gains tax rate applies, and long-term holding special deductions are not available. If the sale occurs after the area is deregulated, these surcharges can be avoided. However, from May 10 this year to May 9 next year, there is a temporary one-year deferral on the application of capital gains tax surcharges for multi-homeowners, so there is no immediate effect.

The exemption period for capital gains tax on temporarily owning two houses by a single household is also extended. If both the previous and newly acquired houses are located in regulated areas, the previous house must be sold within two years to qualify for the exemption. However, if the previous house is deregulated or the new house is in a non-regulated area, the disposal period is extended to three years.

The standard acquisition tax rate period for temporarily owning two houses by a single household is also extended. If a single household owning one house in a regulated area acquires another house in the same regulated area due to reasons such as moving, education, or employment, they must dispose of the previous house within two years for the new house to be subject to the standard acquisition tax rate (1-3%). However, if the previous house is deregulated before acquiring the new house, the standard tax rate applies even if the previous house is disposed of within three years from the acquisition date of the new house.

The burden of gift acquisition tax rates is also eased. If a multi-homeowner receives a gift of a house with a publicly announced land price of 300 million KRW or more in a regulated area, a 12% gift acquisition tax rate applies. However, if the house is gifted after the area is deregulated, a 3.5% acquisition tax rate applies regardless of the publicly announced land price.