CCEJ Announces Analysis of Special Long-term Holding Deduction
"Tax Benefits for Single-home Owners Encourage Focus on Prime Properties"
There have been criticisms that excessive expansion of tax benefits for owners of a single home is fueling the trend of concentrating investments into a “smart single property.” This phenomenon is particularly notable with high-priced apartments symbolized by Seoul’s Gangnam district, where holders enjoy enormous capital gains without paying appropriate taxes, thereby encouraging unearned income and exacerbating asset inequality.
The Citizens’ Coalition for Economic Justice (CCEJ) made these points at a press conference held on March 3 to announce the results of its analysis of the “Special Long-Term Ownership Deduction” (so-called “Jangteuk Deduction”). The CCEJ calculated estimated tax payments using actual transaction cases of the Hyundai Apartment in Apgujeong, Gangnam-gu, Seoul, as posted on the Ministry of Land, Infrastructure and Transport’s transaction price system, along with the National Tax Service’s capital gains tax simulation tool.
The “Jangteuk Deduction” is a system that allows for the deduction of a portion of capital gains if a property is held for a certain period of time. Under the current system, a single-home household can deduct from 24% to 80% of capital gains, depending on the holding and residence period. If the property is held and occupied for at least three years, the deduction is 24%; for five years, 40%; and if held for more than ten years, up to 80% can be deducted.
If a household purchased a Hyundai Apartment (third complex, 82.5 sqm exclusive area) in Apgujeong in 2015 for 1.25 billion won and sells it in 2025 for 5.5 billion won, and if the single-home ownership and residence requirements for more than ten years are met and the 80% Jangteuk Deduction is applied, the actual tax paid will only be 240 million won, with the tax burden rate at about 7%. Even after paying taxes, the seller’s profit exceeds 4 billion won.
In contrast, to earn a total of 4.25 billion won in employment income over 15 years, one would need to earn 280 million won annually. The annual income tax would be 79.83 million won, and the cumulative tax over 15 years would reach 1.2 billion won, resulting in a tax burden rate of 29%. The CCEJ criticized, “The current tax law offers significantly more benefits to unearned income from real estate capital gains than to earned income, thereby encouraging real estate speculation.”
The CCEJ also pointed out that even when buying homes with the same investment amount, it is more advantageous to purchase in Gangnam. For example, if 1.25 billion won is used to purchase one apartment of 84 sqm exclusive area in Daewoo Marina, Haeundae-gu, Busan, in 2010 with cash, and the remaining five units are bought through gap investment, the pre-tax capital gain by June 2025 is estimated at 3.96 billion won. For the one unit, since the selling price is less than 1.2 billion won, it is exempt from taxation. For the five units, assuming they are held for more than 15 years and the 30% Jangteuk Deduction is applied, the total tax to be paid is 790 million won, with a tax burden rate of about 20%.
The CCEJ emphasized, “Deduction rates that do not apply to earned income are being applied to unearned income from real estate,” adding, “Since single-home owners already receive tax exemption on properties sold for less than 1.2 billion won, it is necessary to fundamentally reconsider whether it is appropriate to additionally grant the maximum 80% Jangteuk Deduction.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
