2026 capital gains tax reform proposal: Residence will matter more than ownership

A key feature of the capital gains tax reform proposal announced on August 3, 2026, is the gradual reduction and eventual elimination of tax benefits based on the holding period, with a corresponding shift toward a residence-based system. In particular, the long-term holding deduction available to single-homeowners will undergo significant changes, making actual residency a critical factor in determining tax benefits. It should be noted, however, that the proposal is currently at the government bill stage and may be revised during the legislative review process in the National Assembly.
 

Long-term holding special deduction to be replaced by a "long-term residence income deduction"

Under the proposed reform, separate deduction regimes will be established for residential properties and non-residential assets. The deduction applicable to homes will be renamed the "Long-Term Residence Income Deduction," while the deduction for land, commercial properties, and other non-residential assets will become the "Long-Term Holding Income Deduction." This change reflects the government's policy objective of directing tax benefits toward homeowners who actually live in their residential properties, rather than those who simply retain ownership for an extended period.
 

Gradual transition to a residence-based deduction system

Currently, a single-household owner of one residence can claim an annual deduction of 4% for the ownership period and an additional 4% for the period of residence, with the total deduction capped at 80%.

The proposed reform gradually reduces the ownership-based component as follows:

• Through 2027: Current system maintained (4% ownership + 4% residence)
• 2028: 2% ownership + 6% residence
• From 2029 onward: 8% residence only (ownership-based deduction eliminated)

As a result, beginning in 2029, homeowners who have held a property for a long time but have not actually resided in it will receive significantly reduced tax benefits. In contrast, single-homeowners with lengthy periods of actual residence will continue to be eligible for the maximum deduction of 80%.
 

Introduction of deduction amount caps, preferential treatment for long-term residents, and exceptions

While the current system imposes only a percentage-based cap on deductions, the proposed reform introduces a cap on the actual deductible amount:

• 2028: Maximum deduction amount of KRW 2 billion
• From 2029 onward: Maximum deduction amount of KRW 1 billion

Accordingly, owners of high-value homes with substantial capital gains may face limitations on the amount of deduction available, even if they qualify for a high deduction rate.

On the other hand, tax support for long-term owner-occupants will be expanded. For a single-household homeowner who has resided in a principal residence for at least 10 years and whose sale price does not exceed KRW 3 billion, the basic capital gains deduction will increase significantly from KRW 2.5 million to KRW 25 million. In addition, the government intends to maintain the existing exception rules for calculating residence periods. Periods during which a homeowner is unable to reside in the property due to unavoidable circumstances, such as education, employment-related relocation, or medical treatment, are expected to continue to be recognized. The specific details will be finalized through future legislative amendments.
 

A shift toward favoring homes lived in, not merely held

In essence, the reform can be summarized as a policy that favors homes that have been lived in for a long time rather than simply owned for a long time. However, concerns have been raised that homeowners who have held properties for many years may face substantially higher capital gains tax liabilities if they dispose of those properties after 2029 under the proposed rules. As a result, there have been growing calls for broader exception provisions or transitional relief measures.

The proposal reflects the government's broader policy objective of stabilizing housing prices by discouraging investment-driven housing demand and encouraging owner occupancy. For this reason, significant attention is being paid to how the capital gains tax reform proposal will ultimately emerge from the National Assembly's legislative review process.