[Practical Finance] 30% Income Deduction on Brokerage Fees... Request Reissuance if Receipt Was Forgotten

Real Estate Brokerage is Required to Issue Cash Receipts
Report Refusal to Receive Rewards

Before you know it, only one month remains in this year. It is now time to carefully review the year-end tax settlement, often called the ‘13th month salary.’ Especially for real estate-related year-end tax settlements, it is essential to check thoroughly since the amounts involved are large and many transactions are conducted in cash.

First, if you bought or sold a house this year or rented a jeonse or monthly rental house, you should keep the ‘brokerage fee’ cash receipt. By keeping the brokerage fee cash receipt, you can receive a 30% income deduction during the year-end tax settlement.

If you moved this year, you need to keep the cash receipt for brokerage fees for year-end tax settlement. The photo shows a certified real estate agency in Seoul. [Image source=Yonhap News]

Even if you did not receive a cash receipt at the time of the transaction, there is no need to panic. You can request the issuance later from the broker. Real estate brokerage is a business category required to issue cash receipts. In other words, if the brokerage fee is 100,000 KRW or more, a cash receipt must be issued. If issuance is refused, you can report it through the National Tax Service’s Hometax system, and a reward will be given to the reporter.

Some brokers require an additional value-added tax (VAT) of 10% as a condition for issuing a cash receipt. In such cases, you should first check whether the broker is a general taxpayer or a simplified taxpayer. If the total sales last year were 48 million KRW or more, the broker is classified as a general taxpayer and can charge VAT separately. However, if sales were less than 48 million KRW, the broker is a simplified taxpayer and can include VAT in the real estate brokerage fee.

Moreover, simplified taxpayers effectively pay only 3% VAT on the real estate brokerage fee. Therefore, if a simplified taxpayer includes VAT in the brokerage fee but demands separate VAT or includes 10% VAT instead of 3%, it constitutes unjust enrichment. You can verify whether the broker is a simplified taxpayer by checking the business registration certificate displayed at the brokerage office. It indicates whether the broker is a general taxpayer or a simplified taxpayer below the business registration number.

If your spouse or parents have rental income from housing and cannot receive deductions in the year-end tax settlement, there are points to check.

According to tax law, housing rental income is taxable income earned through the business of housing rental. However, since 2019, if the annual housing rental income is 20 million KRW or less, it is subject to separate taxation, and even if only separately taxed housing rental income exists, basic deductions can be claimed. This is because non-taxable and separately taxed income amounts are excluded when determining eligibility for personal deductions based on annual income.

If your spouse has no other income and the housing rental income is 20 million KRW or less annually, it is separately taxed and not included in the annual income amount, making them eligible for the year-end tax settlement basic deduction. Choosing separate taxation means that comprehensive income tax is not calculated by combining with other income, and a 14% tax rate applies only to the housing rental income.

If your parents have non-taxable housing rental income, they can receive the basic deduction. Housing rental income from owning one house (with a standard market price exceeding 900 million KRW) is non-taxable, so if only such non-taxable income exists, it qualifies for the basic deduction. When determining whether housing rental income is taxable, the number of houses is based on the combined total of the couple, excluding houses owned by direct ascendants or descendants.