Korea's Long-Term Holding Deduction: 40% Held Plus 40% Lived

For a one-house household in Korea, the long-term holding special deduction is built by counting ownership at 4% per year and residence at 4% per year, then adding the two, with a ceiling of 80%. That table only opens if the home was held for at least three years and lived in for at least two of them. Fall short of the two-year residence test and the same ten years of ownership yields just 20% — the general rate of 2% per year. And the 2026 tax reform package sets a schedule for shifting the whole structure toward residence: as Energy Economy News reports, 2028 moves to 2% per year for ownership and 6% for residence, and from 2029 the ownership component is abolished, leaving 8% per year for residence alone.

Count ownership and residence separately, then add them

The deduction subtracts a percentage from the capital gain rather than lowering the tax rate. Because it shrinks the taxable amount itself, its effect on the final bill grows with the size of the gain.

Ordinary real estate counts ownership only: 2% per year from the third year, capped at 30% at fifteen years. Qualify as a single-home household and ownership earns 4% per year while residence earns another 4% per year, the two summed. Organising the deduction rate table published by the National Tax Service, assuming years of ownership equal years of residence, gives the following.

When the two periods differ, read each column separately and add. Ten years of ownership with four years of residence gives 40% + 16% = 56%. Residence of at least two but under three years counts as 8%, so three years held with two years lived in comes to 12% + 8% = 20%.

Above 1.2 billion won, the gain gets split first

A single-home household is exempt on sale proceeds up to 1.2 billion won. Above that line the whole gain is not taxed — only the proportion attributable to the excess. The formula multiplies the total gain by (sale price minus 1.2 billion) divided by sale price. The long-term holding deduction then applies to that filtered taxable gain.

Fixing a 2 billion won sale, a 1 billion won purchase and ten years of ownership, and varying only the residence period, shows how much the deduction carries. The total gain is 1 billion won, and the taxable gain is 1 billion x (2 billion − 1.2 billion) / 2 billion = 400 million won. The deduction and remainder columns below are calculated directly from that 400 million.

Same home, same holding period, same sale price — and the gain after deduction spreads fourfold, from 320 million won to 80 million won. The first row is a household that failed the residence test, closing the preferential table and leaving the general 2% per year accumulated over ten years. Once progressive rates are applied on top, the gap widens further as the figures cross bracket boundaries.

One more caution. For a home that was in a regulated zone at the time of purchase, two years of residence is a condition of the 1.2 billion won exemption itself, so no residence history can push the calculation below even the first row above. Inherited and gifted homes have a different acquisition value and a different start date for the holding clock, so check why an inherited home's acquisition value is the market value at the time of inheritance first; and if two homes overlapped during a move, the one, two and three-year tests for temporary two-home exemption apply alongside.

Two homes with the same ten years behind them can end up four times apart in taxable gain, depending on how many of those years someone actually lived there.

From 2029, holding alone stops counting

The 2026 reform package changes both the name and the structure of the deduction for high-value single homes. Housing moves to a residence-centred long-term residence income deduction, while non-residential property such as retail units keeps an ownership-based long-term holding income deduction. The rate change is phased, and a new cap on the deduction appears.

The 80% ceiling is identical across all three periods; what changes is the route to it. From 2029, ten years of ownership with no residence history leaves no housing deduction at all. NewsWhoPlus summarises the direction as a structure where how long someone actually lived in the home, not how long they held it, determines the deduction.

The new cap bites first on high-value homes with large gains. With ceilings of 2 billion won in 2028 and 1 billion won from 2029, a deduction computed from the rate table is recognised only up to that limit. According to Sisa Journal e, the comprehensive real estate holding tax was softened during deliberations while the reduction of this deduction was left intact.

The year boundaries attach to the transfer date. End of 2027 and end of 2028 are the points where rates change, and that is where the relative advantage flips between homes with short and long residence histories. The package still has to clear the National Assembly, so final rates and caps may differ from the proposal.

What to check

• Pull a resident registration abstract and count actual years of residence in that home — it is the starting point of the whole calculation
• Confirm whether the area was a regulated zone at the time of purchase, which decides whether two years of residence is an exemption condition
• Check whether the expected sale price sits above or below the 1.2 billion won line; above it, the excess-proportion calculation comes first
• Write ownership years and residence years separately, multiply each by 4% and add — if they differ, your combined rate will not match the simplified table
• If there were periods of owning multiple homes, confirm with a tax adviser whether those years count toward either clock
• Work out whether the sale date straddles the end-2027 or end-2028 boundary, and whether the computed deduction exceeds the 2 billion or 1 billion won cap

Sources

• Long-term holding special deduction rates (National Tax Service filing guide)
• How the long-term holding deduction changes: holding alone becomes a disadvantage (Energy Economy News)
• 2026 tax reform: capital gains deduction favours actual residence over long holding (NewsWhoPlus)
• Holding tax eased, but the deduction cut stands (Sisa Journal e)