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🇰🇷 South Korea /Economy & Trade

Debate over real estate tax credit abolition heats up, 'tax bomb' warnings issued

From Hankyoreh · (11m ago) Korean Mixed tone

Translated from Korean, summarized and contextualized by DistantNews.

TLDR

  • Debate intensifies over the potential abolition of the long-term holding special tax credit (Jangteukgongje) for capital gains tax on real estate.
  • Opposition parties warn of a "tax bomb" for homeowners, particularly those living in their primary residences, while proponents argue the credit disproportionately benefits high-value property owners.
  • Experts urge a calm, evidence-based discussion on reforming the credit, which has evolved significantly since its introduction and currently offers substantial benefits even to non-residents.

A heated debate is erupting over President Lee Jae-myung's administration's proposal to gradually phase out the long-term holding special tax credit (Jangteukgongje) for capital gains tax on real estate. While the opposition decries the move as a "tax bomb" that will penalize ordinary homeowners, proponents argue the current system offers excessive benefits, particularly to owners of high-value properties.

We have not considered any tax reform related to the Jangteukgongje.

— Kang Joon-hyunChief Spokesperson for the Democratic Party, distancing the party from the proposed tax credit changes.

The controversy centers on a tax benefit that allows homeowners to deduct a portion of their capital gains based on how long they have owned and resided in a property. Currently, a single-home owner who has lived in their property for 10 years can receive a deduction of up to 80% on capital gains, a benefit that applies to homes valued above the 1.2 billion won non-taxable threshold. Introduced in 2008 with a maximum deduction of 45% for properties held over 15 years, the credit has been progressively expanded over successive administrations. Critics point out this structure incentivizes holding onto a single, high-value property ('똘똘한 한 채') rather than encouraging broader property ownership or turnover.

If the Jangteukgongje is simplified and abolished as a speculative benefit, it will inevitably become a 'tax bomb' for many citizens, including those living in their primary residences.

— Jeong Jung-sikPolicy Committee Chairman of the People Power Party, warning of negative consequences.

Adding complexity, the current system still grants significant benefits, up to a 40% deduction based on holding period alone, even to non-resident property owners. This has led to calls for reform, with the government and ruling party reportedly considering reducing the deduction for non-resident holding periods as a first step. However, political rhetoric has escalated, with some figures likening the potential abolition to "extortion." Experts, while generally agreeing on the need for reform, caution against hasty decisions and emphasize the need for a nuanced approach that considers the impact on various homeowner groups, including long-term residents. They suggest options like adjusting the deduction rate or limiting the benefit to specific high-value segments, rather than a blanket abolition.

Those who have owned and resided in their homes for a long time are completely unrelated to speculation aimed at short-term gains. Abolishing the Jangteukgongje is nothing short of 'extortion.'

— Oh Se-hoonMayor of Seoul, expressing strong opposition to the proposed changes.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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