The government is reviewing an overhaul of the real estate "long-term holding special deduction," known as the Jangteuk deduction, according to reports on the 3rd. This follows President Lee Jae-myung's criticism, "Why do we cut taxes on money made from a dwelling bought only to make money without any intention to live there, just because its price went up?" In line with the intent Lee pointed out, there is talk of reducing the deduction for nonresidents.
According to ChosunBiz's reporting compiled that day, the Ministry of Economy and Finance is reviewing whether to include the direction of the Jangteuk deduction overhaul in next year's tax reform plan to be announced around July. The Jangteuk deduction was introduced in 1989 to encourage long-term holding of dwellings by reducing the gains arising from price increases due to inflation.
After several revisions, the current system allows a single-dwelling owner who has held and lived in a dwelling worth more than 1.2 billion won in capital gains for at least 10 years to receive up to an 80% reduction in capital gains tax. Basically, apartments held for more than three years and lived in for more than two years are eligible. The deduction rate for capital gains tax varies by holding and residency period, and the benefit is greater for single-dwelling owners.
Since January, Lee has signaled an overhaul of the Jangteuk deduction by pointing out tax breaks for single-dwelling owners who purchase for speculation. On Jan. 23, on X (formerly Twitter), Lee said, "Not only multiple dwellings but also nonresident single dwellings, if for investment or speculation rather than for housing, look odd to get a tax break just because they were held long term," adding, "The long-term holding special deduction (Jangteuk deduction) ends up blocking listings and encouraging speculation."
Lee also said last month, "The Jangteuk deduction is a system that slashes capital gains taxes solely for long-term holding," adding, "There is a separate system that reduces capital gains taxes for long-term residency." Addressing concerns that the Jangteuk overhaul would freeze real estate listings, Lee gave examples such as "half-abolition after a six-month grace period, and full abolition a year later," and said, "We can abolish it gradually and in stages."
Accordingly, there is talk of reducing or abolishing the deduction for nonresidents within the Jangteuk deduction. This would either make those who only hold a home without living in it ineligible for the deduction or lower the deduction rate from current levels. However, the key question is whether to allow exceptions for those who cannot reside due to unavoidable reasons such as job transfers, school transfers, or emigration.