'Residence House Tax Exemption' Maintained at 5 Years Despite Rental House Transfer Deadlines... Controversy Resolved

With the recent tax reform setting transfer deadlines for rental houses of rental business operators, there was confusion regarding how long one has to sell a residence house after the cancellation of a rental house registration to receive the capital gains tax exemption. This is because if a rental house is not sold within the specified deadline, it is no longer considered a long-term rental house, leading to the phased abolition of tax benefits. Accordingly, concerns were raised as to whether the residence house must also be sold within one year from the cancellation date, just like the rental house, to apply the tax exemption.

Background of the Rental House Transfer Deadline Restrictions and the Residence House Tax Exemption Controversy

According to a Real Estate Show video, the core of this tax reform is the establishment of transfer deadlines for rental houses. If a rental house is not sold within the transfer deadline, existing tax benefits, such as the exclusion from heavy taxation on capital gains, will gradually disappear. In particular, for those whose registration was automatically cancelled by this year, the rental house must be sold by next year to receive the exclusion from heavy taxation; from 2028, the application rate for special deductions for long-term holding will decrease, and from 2029, the benefits will disappear entirely.

In this process, the problem surfaced as interpretations emerged stating that 'if a rental house is not sold within the transfer deadline, it is no longer considered a long-term rental house.' If a rental house loses its status as a long-term rental house, concerns arose that the special regulation, which previously provided tax exemptions if the residence house was sold within 5 years after the cancellation of the rental house, might be shortened to within one year. In other words, anxiety spread that the transfer deadline restrictions for rental houses could affect the tax exemption requirements for residence houses.

Specified in the Enforcement Decree of the Income Tax Act... "Residence House Tax Exemption Applies Within 5 Years After Cancellation"

However, in conclusion, the application period for the capital gains tax exemption of a residence house remains the same as before. The video cited the fact that the requirements for the residence house tax exemption are specified in Article 155, Paragraph 1 of the Enforcement Decree of the Income Tax Act (related to Paragraph 23 mentioned in the video). The explanation is that since the law clearly stipulates that the tax exemption applies if the residence house is sold within 5 years from voluntary or automatic cancellation, the 5-year period will not change unless this clause is deleted or modified.

In fact, according to the revised law data, which was decided at the Cabinet meeting on September 29 and implemented from October 1, it is specified that the residence house tax exemption special case applies for 5 years from the date of registration cancellation (including voluntary and automatic cancellation), just as it does currently. Government announcement materials also cleared up market confusion by clearly stating, "A residence house is exempt from tax as is if sold within 5 years from the date of voluntary or automatic cancellation."

Rental Houses Need 'Sale Within Deadline', Residence Houses Need 'Sale Within 5 Years' Strategy

As a result, rental business operators must establish tax plans by distinguishing between two different deadlines. To receive benefits for the rental house itself (such as exclusion from heavy taxation), the rental house must be disposed of within the specified transfer deadline (for automatic cancellations, by next year, etc.). On the other hand, if one intends to receive the tax exemption for a residence house while holding the rental house, the 5-year period from the date of cancellation can be utilized.

The video advised regarding the tax exemption requirements for residence houses, "Since you receive the tax exemption if you sell within 5 years after cancellation, do not rush too much and catch the timing." However, it recommended that since the application of tax laws may vary depending on individual circumstances, the specific timing of the sale must be decided after consulting with a tax expert.