The Citizens' Coalition for Economic Justice (CCEJ) criticized South Korea's long-term holding special deduction for capital gains tax, arguing it fuels concentration in "one solid property" strategy and drives up Gangnam real estate prices.
CCEJ held a press conference at its hall in Jongno-gu on Tuesday to release findings on the real estate capital gains tax deduction system.
According to CCEJ's analysis based on the Ministry of Land, Infrastructure and Transport's transaction price disclosure system and National Tax Service simulations, a 196.84㎡ unit at Apgujeong Hyundai Apartment 2nd Complex in Gangnam-gu rose from 2.5 billion won in 2015 to 12.7 billion won last year, generating pre-tax capital gains of 10.2 billion won.
However, when applying the 1.2 billion won tax exemption for single-home owners and the 80% long-term holding deduction, the calculated tax came to approximately 760 million won—a tax burden rate of just 7%. This means the owner could pocket over 9.4 billion won in capital gains after taxes.
Under current tax law, single-home owners are exempt from taxes on sales prices up to 1.2 billion won. Even for amounts exceeding this threshold, owners can receive up to 80% deduction if they hold the property for more than 10 years and meet residency requirements.
CCEJ argued that the advantageous structure for Gangnam single-home owners becomes evident when compared to multi-property investments in provincial areas.
For an investment of 1.25 billion won in one 82.5㎡ unit at Apgujeong Hyundai Apartment 3rd Complex held for 15 years, after-tax capital gains were estimated at 4.01 billion won. In contrast, the same amount invested in six apartments in Busan's Haeundae district through leveraged gap investment would yield after-tax gains of 2.38 billion won.
"The Gangnam 'one solid property' not only sees greater price appreciation but also benefits more from the long-term holding deduction," CCEJ said. "Structurally, it's a natural choice to invest in Gangnam apartments."
CCEJ also analyzed the deduction's effect on the Bundang apartment recently listed for sale by President Lee Jae-myung and his wife. The analysis showed President Lee stands to gain approximately 2.54 billion won in pre-tax profits. He acquired the apartment for 360 million won in 1998 and listed it for 2.9 billion won, below market value.
With the 80% long-term holding deduction applied, the tax would be approximately 92 million won, representing a 4% tax burden rate. Without the deduction, the tax would increase to approximately 600 million won, or a 24% burden rate.
CCEJ criticized the system for encouraging real estate speculation due to the widening gap in tax burden between labor income and property gains.
For instance, earning 4.25 billion won in labor income over 15 years would require paying approximately 1.2 billion won in income tax, while the tax on the same amount of apartment capital gains would be only around 240 million won.
"Our tax code grants far more preferential treatment to real estate capital gains—which can be considered unearned income—than to labor income, encouraging real estate speculation," CCEJ said.
The group called for a fundamental review of the long-term holding special deduction, an end to distortions in official land prices and disclosure of calculation methods, and reduction of basic deductions for comprehensive real estate tax.