New Eligibility Rules for Long-Term Mortgage Interest Income Deductions 2026

South Korea will restrict income tax deductions for interest payments on long-term mortgage loans to homeowners who actually reside in the property, according to a 2026 tax expenditure reorganization plan reported by the Korea Tax News (한국세정신문). The measure aims to redesign the current tax benefit system to ensure that mortgage interest deductions serve their primary purpose of supporting actual residents rather than investors.

New Residency Requirements for Mortgage Interest Deductions

The South Korean government is adjusting the criteria for income tax deductions on long-term housing mortgage loan interest. Under the new guidelines detailed in the 2026 tax expenditure reorganization, the deduction will be limited to cases where the taxpayer lives in the home. This change shifts the focus of the tax benefit toward owner-occupiers.

According to the Korea Tax News, this redesign is part of a broader effort to clean up tax expenditure systems. By requiring residency, the government intends to prevent the use of mortgage tax breaks for properties held primarily for speculative investment or rental income where the owner does not reside.

Context of the 2026 Tax Expenditure Reorganization

The reorganization of tax expenditures is a periodic review process used by the government to evaluate whether specific tax breaks are still achieving their intended policy goals. The 2026 plan identifies the long-term mortgage interest deduction as a target for refinement to align the benefit with actual housing stability for citizens.

Historically, mortgage interest deductions in South Korea have been used to lower the tax burden for homeowners. However, the reported changes indicate a move toward stricter verification of residency to ensure the fiscal cost of the deduction translates into direct support for the residential housing market.

Impact on Homeowners and Investors

The policy change creates a clear distinction between primary residences and investment properties. Homeowners who occupy their mortgaged properties will continue to be eligible for the deduction, while those who lease out their properties or leave them vacant will lose the ability to deduct interest payments from their taxable income.

This adjustment is expected to increase the effective tax rate for real estate investors who previously utilized mortgage interest deductions to offset the costs of maintaining rental portfolios. By limiting the deduction to residents, the government is reducing the tax-advantaged nature of using long-term debt to acquire multiple residential properties.