Housing tax cuts

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Housing tax cuts

The plan to lower the real estate capital gains tax is taking shape. President-elect Lee Myung-bak promised it during his election campaign, and the transition team is considering how to proceed. The United New Democratic Party expressed its intention to do the same. Since the new administration and the major parties all agree with the plan, chances are better that the tax law will be changed by the National Assembly in February. We have stressed many times that to revive the real estate market, a reduction in the real estate capital gains tax is a must. It is welcome news that the ruling and opposition parties already agree about what needs to be done before the new administration is even launched.
However, the plan being discussed is not enough to revive the real estate trade. The transition team and the ruling UNDP suggested that the capital gains tax for single home-owners who have owned their houses for more than 15 years be reduced. At present, long-time homeowners are subject to a tax deduction of 45 percent, and the transition team intends to raise the rate to between 60 and 80 percent. They said this could reduce the tax payment by 60 to 80 percent. At first glance, this looks like a large tax reduction. However, the effects on the real estate sales tax are actually trivial.
Of the entire real estate tax paid, the amount paid by long time homeowners who own a single home accounts for only 0.9 percent. The percentage of taxpayers who can benefit from such a tax cut is less than 1 percent. In this case, saying that real estate capital gains taxes have been reduced would be awkward. It would also be difficult to expect them to revive the real estate market.
There are concerns that if the capital gains tax is cut drastically, this could lead to another rise in real estate prices. That is understandable. However, if the team intends to cut the tax at all, the cut should be enough to make the effect visible. At least, homeowners should not be afraid to sell their houses because of the capital gains tax.
For that purpose, the targeted homeowners who will benefit from the capital gains tax deduction and exemption need to be expanded. In particular, among long-time single homeowners, the tax for the elderly and retirees should be reduced drastically. Or for those buying a new house, an amount equal to the price of the home can be deducted. Along the same lines, the standard set in 1999 that categorized pricey homes as ones that are worth 600 million won ($639,658) or above needs to be raised in line with reality.
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