Transfer Deadline for Rental Housing Fixed at 1 Year... Applies to Purchased Rental Housing in Adjustment-Targeted Areas

The transfer deadline for rental housing to receive tax benefits for rental business operators has been fixed at one year. Although there were initial expectations for a revision of the tax reform plan, the burden on rental business operators is expected to increase as it is ultimately implemented as originally planned.

According to the Real Estate Show video, the amendment to the Enforcement Decree of the Income Tax Act, which contains the transfer deadline to receive tax benefits such as the exclusion from heavy capital gains tax on rental housing and the special deduction for long-term holding (50%) under the Restriction of Special Taxation Act, passed the State Council and has been in effect since October 1. The core of this amendment is to limit the period during which a rental business operator can dispose of a house while maintaining tax benefits to 'one year.' The video explained that it has become realistically very difficult for rental business operators to sell houses within the one-year deadline to receive tax benefits.

Target is Purchased Rental Apartments in Adjustment-Targeted Areas... Tax Exemption for Resident Houses Maintained

The one-year transfer deadline does not apply to all rental business operators. This measure targets purchased rental apartments located in Adjustment-Targeted Areas (including 4-year or the previous 5-year type short-term private rental housing) and 8-year long-term general private rental housing in the form of purchased rental rather than construction rental. However, construction rental is excluded from this transfer deadline restriction.

However, the regulation where a rental business operator can receive a capital gains tax exemption by selling their resident house remains the same as before. If a resident house is sold while holding rental housing that has been voluntarily canceled or automatically canceled, the tax exemption can be received only if it is disposed of within 5 years from the date of cancellation. Even if the person becomes a single-house owner by disposing of the rental housing first, the tax exemption can be applied without a 5-year limit. The video added that one can rest easy because the capital gains tax exemption regulation for resident houses was not touched in this amendment.

Preparation of Relief Measures According to Variables Such as Reconstruction and Designation of Adjustment Areas

Considering the criticism that the one-year transfer deadline is realistically short, the government included some relief measures in the Enforcement Decree. These are standards prepared for cases where transfer is restricted due to the timing of automatic cancellation, the timing of designation as an Adjustment-Targeted Area, or reconstruction/redevelopment. These relief measures, which apply from October 1 according to the decree promulgated on September 30, are prepared for situations where the transfer deadline might be missed.

Specifically, tax benefits can be received if the house is sold: ▲within 1 year from the automatic cancellation date ▲within 1 year from the announcement date of the area if it is designated as an Adjustment-Targeted Area after next year ▲within 1 year from the 'previous notice' date if transfer is restricted due to the authorization of association establishment for reconstruction, redevelopment, small-scale reconstruction, small-scale redevelopment, or street house maintenance projects. In particular, if the authorization of association establishment has already been completed and transfer is restricted, a path has been opened to sell within 1 year from the previous notice date. If multiple conditions overlap, the one-year deadline is applied based on the latest of these dates.

Concerns Over Realistic Selling Difficulties Such as Tenant Eviction Issues

Despite the relief measures being prepared in the regulations, concerns are arising in the field that actual selling will be difficult. In particular, since most Adjustment-Targeted Areas are currently designated as Land Transaction Permit Zones, it is very difficult to sell a house within one year if the tenant does not vacate, due to the characteristic that the buyer must reside in the property. The video pointed out that it is impossible to sell within one year if the tenant does not vacate, citing the fact that one cannot sell a house with a tenant in place in a Land Transaction Permit Zone.

The video explained that for rental housing to be disposed of within the scope of capital gains tax benefits, the tenant's move-out must be a prerequisite. It is analyzed that instability in the rental market may increase as a phenomenon of tenants being pushed out may occur in this process. Meanwhile, changes in tax benefits according to the expiration of the transfer deadline are specified in the Restriction of Special Taxation Act. If transferred after exceeding 1 year but within 2 years, the special deduction for long-term holding is reduced to 30% and the capital gains tax is heavily taxed at about half the level, and if sold after exceeding 2 years, all benefits will not be received. The amendment to the Restriction of Special Taxation Act containing these details is still awaiting passage in the plenary session of the National Assembly of the Republic of Korea, but the video predicted that it is likely to pass the threshold of the National Assembly of the Republic of Korea as is, without modification.