Govt. temporarily eases capital gains surcharge on multi-home owners, with retroactive relief

The government has decided to temporarily ease the capital gains tax surcharge on owners of multiple homes in designated adjustment zones, a move tied to its broader overhaul of property holding taxes. The measure is intended to give multi-home owners an exit path as their overall tax burden rises under the strengthened holding tax regime.

Under the 2026 tax reform package announced Monday by the Ministry of Economy and Finance, the capital gains tax surcharge on multi-home owners who have held properties in designated adjustment zones for at least two years will be reduced on a temporary basis through 2028.

Under the revised structure, owners of two homes will be taxed at the standard rate of 6 to 45 percent plus a surcharge of 5 percentage points in 2027 and 10 percentage points in 2028. Those holding three or more homes will face surcharges of 10 percentage points in 2027 and 15 percentage points in 2028.

Under the current system, which resumed May 10 this year, two-home owners are subject to a 20-percentage-point surcharge on top of the standard rate, while those with three or more homes face a 30-percentage-point addition. The government set lower rates through 2028 but structured them to reward earlier sales with a lighter tax burden.

However, the long-term holding deduction will not apply during the temporary relief period, consistent with the existing surcharge regime.

The government offered an illustrative example involving a two-home owner who sells a property in a designated adjustment zone and realizes a capital gain of 500 million won ($349,000). Under the current surcharge, the capital gains tax would amount to approximately 270 million won. Under the eased rates, that figure would fall to about 200 million won for a sale in 2027 and about 220 million won for a sale in 2028.

The measure will be implemented through a temporary special provision in the income tax law. The relief will apply retroactively to properties sold on or after May 10 this year, before the law is amended. Taxpayers filing a preliminary return next year may use the reduced rate, and those who have already paid taxes at the higher rate can receive a refund through the final return process in May next year.

The temporary relief will remain in effect only through 2028. Starting in 2029, the full surcharge will return — 20 percentage points for two-home owners and 30 percentage points for those with three or more homes — bringing the maximum capital gains tax rate back to 75 percent.

The exemption from the multi-home capital gains surcharge was first introduced as a one-year temporary measure on May 10, 2022, and was extended three times, remaining in place for roughly four years until May 9 this year. The government then reinstated the surcharge on May 10 as originally planned.

At a Cabinet meeting on Feb. 3, Deputy Prime Minister Koo Yun-cheol, who also serves as minister of economy and finance, told President Lee Jae Myung that the window to avoid the surcharge was "probably the last chance." Lee pushed back, saying "there is no 'probably'" and adding that "trust and predictability are essential in policy — this was not a four-year suspension granted all at once, but a one-year extension repeated three times."

The government said the decision was directly linked to the holding tax overhaul. "At the time, it had not yet been decided whether or how much holding taxes would be raised," a Ministry of Economy and Finance official said. "Now that the direction for normalizing holding taxes has been set and the policy environment has changed, we concluded it was right to give multi-home owners the opportunity to make a choice."