The long-term holding special deduction (LTSD) is on the verge of being abolished 50 years after its introduction. A bill has been proposed to abolish the LTSD, which deducts up to 80% of capital gains when dwellings are held for a long time, on grounds that it spurs demand for trading up to expensive dwellings and drives up home prices in the Seoul metropolitan area. Instead of the LTSD, the plan would grant each person a lifetime capital gains tax reduction benefit capped at 200 million won to curb excessive benefits for high-priced dwellings and stabilize the real estate market.
The real estate market is split over the proposal to abolish the LTSD. While some are mounting a petition against the bill, saying it is unfair to face an excessive tax burden just for living in one home for a long time, others support abolishing the LTSD for market stabilization.
According to the National Assembly bill information system on the 15th, Yoon Jong-o of The Progressive Party recently proposed a partial amendment to the Income Tax Act to abolish the LTSD. The proposed amendment would abolish the LTSD benefits and instead grant each person a lifetime capital gains tax reduction benefit capped at 200 million won.
Under the Income Tax Act, the LTSD is a system that deducts a certain amount when calculating capital gains tax by subtracting a specified amount from the capital gains on land or buildings held for at least three years. Under current law, there is no capital gains tax on one household's one dwelling if the transfer price is 1.2 billion won or less, but for dwellings exceeding 1.2 billion won, up to 80% of the capital gains is deducted depending on the holding and residency period.
Behind the amendment to abolish the LTSD is the concern that the LTSD has reinforced the "one smart home" phenomenon and pushed up home prices. Yoon said, "Because the LTSD grants tax reduction benefits for a certain percentage of capital gains every time you buy and sell dwellings, there is a regressive problem in which the more you keep switching to high-priced dwellings and realize large gains, the more benefits you get," adding, "As a result, long-term investment revenue for high-priced dwellings has risen, intensifying the 'one smart home' phenomenon centered on prime areas such as Gangnam, and there are concerns that this has become a cause of rising home prices not only in those areas but across the Seoul metropolitan area," explaining the reason for proposing the bill.
If the LTSD is abolished as proposed, even dwellings held and occupied for a long time are likely to face a significant increase in tax burden when sold. For example, if a one-home owner who purchased an 82.5 square meter exclusive-use unit in Apgujeong Hyundai 3rd Apartment for 1.25 billion won in Jun. 2010 held and lived there for 15 years and sold the home for 5.5 billion won in Jun. 2025, the capital gains tax would have been around 260 million won under the current system. Without the LTSD, the capital gains tax in this case would rise to as much as 1.57 billion won. The abolition of the LTSD has a greater impact on higher-priced dwellings.
Debate over the bill to abolish the LTSD is continuing in the market. Those who argue the LTSD should be maintained are running a petition against the amendment. They say, "We did not speculate; we just lived in one place for a long time, and it is unfair to raise taxes just because home prices went up." As of 3 p.m. on the 14th, 5,900 opinions had been submitted on the bill, with the majority opposing it.
By contrast, those who support abolishing the LTSD argue it is a necessary step for market stabilization. A petitioner who argued for abolishing the LTSD noted, "The LTSD was originally designed to protect end users, but in reality it has operated in a way that gives greater benefits to owners of high-priced dwellings," adding, "This further widens the asset gap and is one of the causes of intensifying the so-called 'one smart home' preference in the real estate market."
Experts say a cautious approach is needed to abolish the LTSD. Lee Eun-hyung, a research fellow at the Korea Research Institute for Construction Policy, said, "In outer Seoul and other areas, these are not high-priced dwellings, but if you tell people to pay more taxes just because prices have risen, there will inevitably be backlash," adding, "If the tax burden rises when selling a home and moving, transactions themselves may decline." Ham Young-jin, head of Woori Bank Real Estate Research Lab, said, "The LTSD is meant to encourage people to hold one dwelling long-term for actual residence or holding purposes and not to trade frequently," adding, "If the effect of the LTSD diminishes, the reason to hold dwellings for a long time disappears."