Lawmakers from the Democratic Party of Korea and The Progressive Party, among others in the broader pro-government bloc, jointly proposed an amendment to the Income Tax Act to overhaul the special deduction for long-term holdings. The amendment would abolish the holding-based deduction and expand the deduction for actual occupancy.
Independent lawmaker Choi Hyuk-jin on the 27th introduced as the lead sponsor an amendment to the Income Tax Act that would fully abolish the long-term holding deduction centered on the holding period and gradually increase the deduction rate in proportion to the actual period of residence. Choi referred to the bill as the "actual-occupancy-centered overhaul of the special deduction for long-term holdings."
A total of 13 lawmakers, including Kim Dong-a, Kim Woo-young, Kim Jun-hwan, Son Sol, Yoon Jong-o, Lee Su-jin, Lee Joo-hee, Lim Mi-ae, Jeon Jong-deok, Jeon Jin-suk, Jung Hye-kyung, and Cho Gye-won, took part in introducing the bill. Lawmakers from the Democratic Party and The Progressive Party in the broader pro-government camp joined the effort.
The abolition of the long-term holding deduction emerged as a political flashpoint after President Lee Jae-myung posted several related messages on X (formerly Twitter). When the People Power Party argued that abolishing the capital gains long-term holding deduction on real estate would lead to a tax bomb, Lee countered, "It is, of course, tax that should be paid on the money earned from the rise in the price of dwellings bought to make money without any intention to live there, so why give a big discount just because they were owned for a long time?"
As the controversy continued, the Democratic Party noted that it had not reviewed any tax reform. However, with Democratic Party lawmakers now taking part in proposing a bill to revamp the long-term holding deduction, the related debate is expected to continue.
Under the current Income Tax Act, a uniform deduction of up to 40% is applied based on the holding period, regardless of actual occupancy. Choi's amendment would abolish deductions arising from holding itself, while maintaining deductions for actual occupancy and shifting to a system centered on occupants that increases the deduction rate in proportion to the period of residence.
The amendment clearly defines the scope of the long-term holding deduction as "one household with one home held for at least three years," excluding cases without actual occupancy from eligibility. It is explained that the abolished 40% holding-period deduction would be absorbed into the residence-period deduction so that one-household-one-home actual occupants do not see their existing benefits reduced. Starting from the point when the actual residence period reaches two years, a 16% deduction would apply, with a structure that gradually raises the deduction rate in proportion to the residence period so that the longer the residence, the higher the deduction rate.
It also explicitly excludes the application of the long-term holding deduction when a nonresident disposes of real estate in Korea. The aim is to prevent people who do not live in Korea from reaping unearned income from real estate in Korea.
Choi said, "We have fully absorbed the abolished 40% holding-period deduction into the residence-period deduction so that one-household-one-home actual occupants do not see their existing benefits reduced, and we designed a structure in which the longer one resides, the higher the deduction rate," adding, "We will dig into and dismantle, one by one and to the very end, the structures that channel the people's taxes into the pockets of vested interests, and we will make sure the middle class and working people regain the benefits they rightfully deserve."