[Practical Finance] A Ray of Hope in High Interest Rates... How to Receive the '13th Month Bonus' at Our Home

Income Deduction Limit for Cheongyak Savings Account Raised to 3 Million Won
Monthly Rent and Jeonse Principal Repayment Also Eligible for Deduction
Mortgage Loan Interest Deduction Possible

The year-end is financially tight due to high inflation and high interest rates. With predictable income but increasing expenses, early winter feels even colder. If there is one hope to warm the inner chill, it is the '13th month bonus,' the year-end tax settlement. Although the year-end tax settlement season officially begins in January next year, preparations must be completed by the end of this year. If you prepare well, you might receive an unexpected bonus, so let's carefully review my expenditure details.

Especially since the government has revised tax laws to reduce the interest burden related to housing, if you make good use of the house you live in, you can earn a month's rent. Those living in jeonse (long-term deposit lease) can cover one month's jeonse loan interest, and the Yeongkkeul (borrowing to the soul) group can cover mortgage loan interest, so no real estate-related expense should be overlooked.

Everyone Can Make a Housing Subscription Savings Account, Get Up to 1.2 Million KRW Income Deduction

Housing subscription savings account = About 26 million people have opened housing subscription savings accounts (Housing Subscription Comprehensive Savings) to prepare for home ownership, which is an essential item to receive income deduction benefits during the year-end tax settlement.

Income deduction is available for up to 40% of the annual payment into the housing subscription savings account, within a limit of 3 million KRW. The limit has been raised from the previous 2.4 million KRW. Since the deduction is based on the amount paid in a year, depositing 3 million KRW at once at year-end to enjoy tax benefits will have the same effect.

However, not everyone can receive the benefit. To get the housing subscription savings income deduction, you must be a homeowner without a house with a total salary of 70 million KRW or less. Those owning one or more houses are excluded from the income deduction even if they have the account. All family members living in the same household, including spouse, children, and parents, must be without a house. Even if the spouse lives separately, if the spouse owns a house, the housing subscription savings deduction cannot be received.

Opportunity to Earn One Month's Rent... If Annual Salary is 55 Million KRW or Less, 17% Tax Credit on Monthly Rent

If you pay monthly rent for anything from a goshiwon (small room), officetel, villa, to an apartment, you must claim the ‘monthly rent tax credit.’ However, there are conditions. First, you must be a homeowner without a house with a total salary not exceeding 70 million KRW. Even if the total salary is less than 70 million KRW, if the comprehensive income exceeds 60 million KRW, you are excluded from the deduction. Also, the rental house must be a national housing unit (exclusive area of 85㎡ or less) or a rental house with a standard market price of 400 million KRW or less.

In this case, you can receive a tax credit of 15-17% on monthly rent within an annual limit of 7.5 million KRW. The credit rate varies depending on total salary. Workers with a total salary of 55 million KRW or less receive a 17% tax credit. Workers with a total salary exceeding 55 million KRW but not exceeding 70 million KRW receive a 15% tax credit. For example, an employee with a salary of 30 million KRW who pays 600,000 KRW monthly for 12 months can get back 1,224,000 KRW.

If the head of the household did not claim the deduction, a household member can claim it instead. However, monthly rent tax credit and other housing-related income deductions cannot be claimed simultaneously within one household. The address on the lease contract and the resident registration must be the same, and the year-end tax settlement applicant and the monthly rent payer must be the same person.

You can apply with just the monthly rent lease contract and monthly rent payment proof without the landlord's consent. It is possible even without a fixed date stamp, and if you miss the claim in the relevant year, you can still claim the deduction within five years.

40% Deduction on Jeonse Loan Principal Repayment

Jeonse residents should actively use income deductions as well. The income deduction for principal and interest repayment on housing lease loans applies to homeowners without a house who rent national housing units (85㎡ or less). It applies when a resident with earned income borrows a jeonse deposit from a lending institution and repays principal and interest.

The loan must be directly deposited from the lending institution to the landlord's account. If conditions are met, you can receive a deduction of 40% of the repayment amount within an annual limit of 4 million KRW. However, note that the amount deducted from the housing subscription savings account is combined to set the limit.

If the total salary does not exceed 50 million KRW, deductions are also possible for amounts borrowed from individuals such as friends or family (principal and interest repayment on housing lease loans). The loan must be taken within one month before or after the earlier date between the contract move-in date and the resident registration move-in date, and the annual interest rate must be at least 1.2%. However, if borrowed from an individual, you must prepare proof documents yourself. Required documents include housing loan repayment certificate, resident registration copy, lease contract copy, loan agreement copy, and principal and interest repayment proof (such as bank transfer details).

High Interest Rates Burden Yeongkkeul Group... Income Deduction Possible if Standard Market Price is 600 Million KRW or Less

Due to the prolonged high interest rates starting last year, the Yeongkkeul group burdened by mortgage interest should claim the ‘long-term housing mortgage loan interest repayment income deduction.’ If you are a wage earner and head of a household with one or fewer houses, you can receive an income deduction on part of the loan interest you paid this year.

However, the standard market price of the house at acquisition must be 600 million KRW or less. As the burden of mortgage loans increased due to high interest rates, the government raised the standard market price from 500 million KRW to 600 million KRW. The deduction limit ranges from 6 million to 20 million KRW depending on the repayment period.

Only loans borrowed from financial institutions and the Housing and Urban Fund are recognized. Only amounts borrowed within three months from the date of housing ownership transfer registration or preservation registration are recognized. Even if you are not the head of the household, if a household member owns the house and you have a mortgage loan in your name and live there, you can receive the income deduction.