Long-Term Holding Deduction
Overview
Korea reduces capital gains tax on property held for longer periods through the jangbi boyu teukbyeol gongje, a deduction applied to the gain before rates are assessed. General owners accrue six percent at three years and two additional percentage points for each further year, reaching a thirty percent ceiling at fifteen years. A qualifying single-home household earns a far steeper allowance — twelve percent at three years rising by four points annually to forty percent at ten years under the holding component — because that schedule combines separate credits for years owned and years actually resided, capped together at eighty percent. A general owner realising a 200 million won gain after ten years deducts twenty percent, or 40 million won, before the progressive brackets apply. Holding periods run from the acquisition registration date, and inherited property may inherit the decedent's clock.
Variables
| Symbol | Name | Unit | Description |
|---|---|---|---|
| $LTHD$ | Long-term holding deduction | KRW | The amount removed from the transfer gain before the tax rate applies. |
| $Gain$ | Transfer gain | KRW | Sale price minus acquisition price and allowable expenses. |
| $years$ | Holding period | years | Completed years of ownership; three years is the entry threshold. |
| $residency$ | Residency status | category | Whether the seller is a single-home household that also occupied the property. |
A Deduction That Grows With Tenure
The long-term holding special deduction (장기보유특별공제) removes a percentage of the transfer gain that rises with the years the property was held:
$$LTHD = Gain \times Rate(years, residency)$$
Nothing is deducted below three years of ownership. From year three the rate climbs on a fixed table, and the table that applies depends on whether the seller qualifies as a single-home household.
Two Schedules
| Years held | Single-home household | General |
|---|---|---|
| 3 | 12% | 6% |
| 5 | 20% | 10% |
| 7 | 28% | 14% |
| 10 | 40% | 20% |
| 15 | — | 30% |
The general schedule advances by two percentage points per year and stops at 30% after fifteen years. The single-home schedule advances by four points per year because it counts occupancy alongside ownership, and it reaches a statutory ceiling of 80% when both components are maximised.
Why the Two Diverge
The general table treats holding period alone. The single-home table splits the allowance between years owned and years actually lived in the property, so a landlord who never occupied the home accrues at the slower general rate even after a decade of ownership.
Derivation & History
The deduction exists because Korean capital gains tax is levied on nominal gain: over a long hold, part of the difference between purchase and sale price is currency depreciation rather than real appreciation. Rather than index the acquisition cost to inflation, the legislature approximated the correction with a tenure-linked percentage. The higher single-home track was added later as a residence incentive, splitting the allowance into ownership and occupancy components so that the largest deduction requires living in the property, not merely holding title.
Worked Examples
Single-home household, ten years owned and occupied
- Look up ten years on the single-home schedule: 40%
- LTHD = 300,000,000 × 0.40 = 120,000,000 KRW
- Remaining gain before the basic deduction: 300,000,000 − 120,000,000
Result: 120,000,000 KRW deducted, leaving 180,000,000 KRW of gain
Edge Cases & Limitations
Below three years the deduction is zero: a property sold at two years and eleven months receives nothing, which makes the third anniversary a hard planning date.
Years are completed, not fractional: seven years and ten months attracts the seven-year rate, so a disposal shortly before an anniversary forfeits a full step.
Multi-home owners in regulated areas are excluded: the surcharge regime withdraws the deduction entirely rather than reducing it.
The 80% ceiling is unreachable on ownership alone: the single-home maximum combines an ownership component and a residence component, so a non-occupying owner cannot pass 40% however long title is held.
Real-World Applications
The table governs disposal timing across the Korean residential market: sale contracts cluster immediately after tenure anniversaries, and advisers routinely recommend deferring a closing by weeks to capture the next step. It also shapes occupancy decisions, since the residence component is worth as much as the ownership component in the single-home schedule, and it feeds the after-tax return assumptions used when comparing a hold against a sale.