🚨 Restriction on Monthly Rent Deduction for Homeowners

Today Korean Economic News | 2025.01.21

📌 "Homeowners Cannot Receive Monthly Rent Deduction"... Company Loans Not Eligible for Lease Deduction

💬 Households that own one house cannot receive housing lease fund principal and interest repayment income deduction or monthly rent tax credit.

1️⃣ Easy to Understand

Among the tax-reducing 'deduction' benefits, there is important content related to housing. The key point is that "people who already own a home cannot receive tax benefits for monthly rent or jeonse loans for another house."

Let me explain with an everyday example. The Kim family owns an apartment in Seoul. Kim's son moved to Busan for employment and lives in a monthly rent studio, with Kim paying the rent. Kim wanted to receive tax deductions for his son's rent, but cannot receive the deduction because the family already owns a house in Seoul.

In another example, Mr. Lee lives in a jeonse apartment using a housing fund loan provided by his company. Mr. Lee repays the loan principal and interest to the company monthly, but this loan is not eligible for tax deduction because it was received through the company rather than directly from a financial institution.

Thus, housing-related tax deductions primarily target 'non-homeowners,' and benefits can vary depending on the type and method of loans. To maximize tax benefits, it is important to understand these detailed conditions.

2️⃣ Economic Terms

📕 Housing Lease Fund Principal and Interest Repayment Income Deduction

Housing lease fund principal and interest repayment income deduction is a system where you can deduct from your income the principal and interest repayments of funds borrowed from financial institutions for jeonse or semi-jeonse.

• The targets are non-homeowner households or one-house-owning households (with a standard market price below 100 million won), with deductions possible within a limit of 3 million won per year.
• It targets wage earners with a total annual salary of 70 million won or less, and the lending institution verifies the deduction requirements and provides the data to the tax office.

📕 Monthly Rent Tax Credit

Monthly rent tax credit is a system that directly deducts a portion of the monthly rent paid by non-homeowners from their tax amount.

• It targets non-homeowner household heads with a total annual salary of 70 million won or less (or total income of 60 million won or less).
• 10-17% (differentiated by income) of the monthly rent paid within an annual limit of 7.5 million won is deducted from the tax amount.

📕 Non-Homeowner Household

A non-homeowner household refers to a household where neither the head of household nor household members own a home.

• The range of household members includes spouses, direct ascendants and descendants (parents, children, etc.), and siblings.
• This serves as an important eligibility requirement for housing-related tax benefits or housing subscription.

📕 Tax Credit and Income Deduction

Tax credit is a method where the amount is directly deducted from the calculated tax, reducing the tax by the deduction amount.

• Income deduction is a method that reduces the taxable income, lowering the tax base, with tax-saving effects varying according to the tax rate.
• Generally, tax credits may be more advantageous for low-income groups, while income deductions may be more advantageous for high-income groups.

3️⃣ Principles and Economic Outlook

💡 Purpose and Effect of Housing-Related Tax Deductions

• Housing-related tax deduction systems are used as policy instruments for housing stability and housing market balance.
  • First, they support basic housing stability by alleviating the housing cost burden of non-homeowners. In particular, they provide substantial economic benefits to vulnerable housing groups such as low-income and young people.
  • Second, they have the effect of alleviating housing market imbalances by reducing rental costs for those with insufficient purchasing power.
  • Third, there is also the ancillary effect of increasing transparency in the monthly and jeonse markets. As clear reporting of lease contracts is necessary to receive tax deductions, under-the-table transactions decrease.
• The reason these deduction systems do not apply to homeowners is to concentrate limited fiscal resources on those who actually need housing stability. Additionally, it aims to prevent multi-home owners from securing additional home purchasing power through tax benefits and to enhance equity in home ownership.
• Housing deduction systems have been continuously adjusted according to market conditions and government policy directions, and there is a possibility that detailed requirements will change in the future according to housing market changes.

💡 Impact of Deduction Restrictions and Response Strategies

• Monthly rent deduction restrictions for homeowners have various economic and social impacts.
  • At the individual level, there is an increased tax burden on additional housing costs for households that own a home. In particular, economic burdens may increase for households where parents and children live in different regions, or those who need to temporarily live in different regions due to work issues.
  • At the market level, homeowners may face relative disadvantages when seeking rental housing, which can affect housing market demand patterns.
• There are several response strategies individuals can take in this situation.
  • First, adjusting home ownership relationships between family members can be considered. If children have become independent, separating households to secure non-homeowner status for each could be an option.
  • Second, utilizing financial institution loan products may be advantageous. Getting a direct loan from a financial institution rather than a company loan to secure rental funds increases the possibility of receiving deduction benefits.
  • Third, strategically planning the timing of home disposal and lease contracts from a tax perspective is important.
  • Fourth, considering changing the housing form from monthly rent to jeonse or purchase can be an option.
• However, such responses should be decided by comprehensively considering individual financial situations, housing market conditions, and future residence plans.

💡 Future Housing Tax System Change Outlook

• Housing-related tax deduction systems are expected to continuously change according to housing market conditions and government policy directions.
  • First, system adjustments due to demographic structure changes are expected. There is a possibility that deduction benefits will be differentiated according to household composition, reflecting demographic changes such as the increase in single-person households and aging.
  • Second, there could be adjustments to deduction limits according to housing price trends and supply situations. In regions where housing prices are rising, deduction limits might be expanded, or regionally differentiated deduction limits might be introduced.
  • Third, additional support for vulnerable groups is expected to be strengthened. There is a high possibility that additional deduction benefits will be provided to housing-vulnerable groups such as young people, newlyweds, and the elderly.
  • Fourth, simplification of reporting and verification procedures will occur due to digital transformation. The deduction application process is expected to become more convenient through electronic contracts, mobile reporting, etc.
  • Fifth, deduction systems may be reduced or expanded according to the government's fiscal situation and the need to secure tax revenue. Particularly during economic downturns, deduction benefits are likely to be expanded to alleviate housing cost burdens.
• To respond to these changes, it is advisable for taxpayers to regularly update their tax information and seek expert advice when necessary.

4️⃣ In Conclusion

Housing-related tax deduction systems are important policy instruments to support housing stability for non-homeowners. This news reconfirms that households owning one house cannot receive housing lease fund principal and interest repayment income deduction or monthly rent tax credit. It also revealed the restriction that deductions are not possible when renting with funds borrowed from a company.

These restrictions are intended to concentrate limited tax benefits on non-homeowners who actually need housing support. However, they can be an additional economic burden for homeowners who need to temporarily live in different regions due to work issues or children's education.

From a taxpayer's perspective, it is important to seek the optimal response strategy for their situation. Various strategies such as household separation, utilizing financial institution loans, and adjusting the timing of home disposal and lease contracts need to be considered according to one's economic situation and future plans.

Policy makers should consider continuous improvements to ensure that housing deduction systems contribute to actual housing stability while flexibly responding to various household forms and living patterns. In particular, a more sophisticated deduction system will be needed according to socio-economic changes such as aging, the increase in single-person households, and the spread of remote work.

In a situation where housing cost burdens are increasing due to recent interest rate hikes and increased volatility in the real estate market, tax deductions can have a significant impact on household economics. Therefore, it is advisable for taxpayers to regularly update their tax information and seek advice from tax experts when necessary.

Ultimately, housing-related tax deductions go beyond simple tax benefits to function as part of housing policy, and it is important to pursue a balance between the two values of housing stability and tax equity. Individuals should understand the purpose and limitations of these systems and establish rational housing and tax plans suitable for their situations.