Gov't targets high-value, non-owner-occupied homes in tax overhaul

Finance Minister Koo Yun-cheol speaks during a pre-briefing on the details of the 2026 tax reform plans at Government Complex Sejong, Thursday. Courtesy of Ministry of Finance and Economy

The government will significantly raise taxes on high-value homes not occupied by their owners by scaling back tax benefits for such properties, in what it calls a bid to promote greater fairness based on ownership and residency status, the finance ministry said Monday.

The move is part of President Lee Jae Myung’s efforts to normalize the housing market, stabilize home prices and support "genuine" homebuyers.

The government also plans to overhaul the tax system with a focus on fostering new growth engines, promoting balanced regional development and supporting low- and middle-income households.

Those measures are part of the 2026 tax overhaul prepared by the Ministry of Finance and Economy.

The key focus of the reform is to strengthen taxation on high-value and non-owner-occupied homes. The government plans to overhaul the capital gains tax and comprehensive real estate tax systems to ease the burden on genuine homebuyers while effectively increasing the tax burden on owners of homes they do not occupy and multiple-home owners.

Under the plan, the government will overhaul the long-term holding deduction for capital gains tax, adjusting the deduction based on the periods of ownership and residence while reducing tax benefits for homes that are not occupied by their owners.

The current long-term holding deduction will be split into two categories — a long-term residence deduction for homes and a long-term holding deduction for other assets. The change is aimed at shifting the deduction from one based on the length of ownership to one based on the period of residence, encouraging homes to be used for actual living rather than as a means of speculation.

Currently, single-home owners are eligible for a long-term holding deduction of 4 percent for each year of ownership and another 4 percent for each year of residence. Each component is capped at 40 percent, allowing for a combined maximum deduction of 80 percent.

Starting in 2029, the government will instead apply an 8 percent deduction for each year of residence, capped at 80 percent.

For multiple-home owners in areas not subject to property market regulations, the current deduction of 2 percent for each year of ownership, capped at 30 percent, will be replaced in 2029 with a 2 percent deduction for each year of residence, also capped at 30 percent.

For multiple-home owners selling a property in a regulated area, the long-term holding deduction is currently excluded, and the residence-based deduction will likewise not apply.

The government will introduce a cap on the long-term residence deduction to ensure a more reasonable level of tax benefits. The cap will be set at 2 billion won ($1.4 million) in 2028 and 1 billion won from 2029.

The government will also revise the basic deduction and fair market value ratio for the comprehensive real estate tax to increase the tax burden on owners of high-value and non-owner-occupied homes.

For residential properties, the basic deduction is currently 1.2 billion won for single-home owners and 900 million won for multiple-home owners.

Under the revised rules, the deduction for single-home owners will depend on whether they live in the property, rising to 1.4 billion won for owner-occupied homes while falling to 900 million won for homes that are not occupied by their owners.

For multiple-home owners, the system will be changed to provide a basic deduction of 400 million won, plus an additional deduction of up to 500 million won depending on the assessed value of the home they live in relative to the total assessed value of all their homes. As a result, the deduction is expected to be lower than the current 900 million won in many cases.

The changes will take effect Jan. 1, 2027.

A redevelopment site in Seoul's Yongsan District, below, and apartment complexes in Gangnam District, July 23 / Yonhap

The fair market value ratio for residential properties under the comprehensive real estate tax will also be gradually raised from the current 60 percent.

For owners of three or more homes and those who own homes in areas subject to property market regulations, excluding single-home owners, the ratio will rise to 70 percent in 2027 and 80 percent from 2028.

The ratio determines how much of the amount left after the basic deduction is subject to tax. For example, if 1 billion won remains after the deduction, the tax rate is currently applied to 600 million won under the 60 percent fair market value ratio. If the ratio rises to 80 percent, however, the taxable amount would increase to 800 million won.

For other homeowners, the ratio will be raised to 70 percent.

In the industrial and economic sectors, meanwhile, the government will introduce a new tax credit for domestic production to foster future growth engines.

The credit will be available to companies that produce and sell key strategic products, including semiconductors, secondary batteries and components for artificial intelligence robots, in Korea.

The measure is aimed at strengthening the country’s domestic production base, with preferential credit rates offered to companies investing outside the Seoul metropolitan area’s overcrowding control zones.

To promote balanced regional development, the government will expand tax incentives, including preferential rates for R&D and investment tax credits and higher tax reduction rates for startups and small and medium-sized enterprises outside the Seoul metropolitan area.

The reform package also includes measures to support low- and middle-income households by raising the annual cap on the monthly rent tax credit to 12 million won from 10 million won and increasing tax benefits for young people’s retirement pension contributions.