Income deduction of up to 18 million won per year?... Becoming a filial son of a mortgage loan!
These days, many people seem to sigh when they look at mortgage loan interest rates.
The era of 1% low interest rates has come to an end and the interest rate on mortgage loans has soared to the upper 7% level...
This is frustrating for the debtor.
However, sometimes a home mortgage loan can work wonders.
You can save taxes. If you are lucky, you may even receive a refund.
This time, we would like to look at the ‘long-term mortgage loan interest repayment deduction’ during the year-end tax settlement known as the 13th month’s salary.
First, to help subscribers understand, let us first mention the ‘types’ and ‘deduction limits’ of ‘income deduction related to housing funds’.
Income deductions related to housing funds are broadly divided into three categories. It is classified into ‘housing savings’ for subscription account subscribers, ‘housing rental loan principal and interest repayment amount’ for jeonse loan users, and ‘long-term mortgage loan interest repayment amount’ for housing mortgage loan users.
Income deductions related to housing funds have very high deduction limits. If you can deduct both ‘Housing Rental Loan Principal and Interest Repayment (②)’ and ‘Housing Purchase Savings (①)’, up to 3 million won (① + ②) is excluded from income. In addition, if you add the deduction for long-term mortgage loans, the deduction increases to a maximum of 18 million won.
Now, let’s look at the main topic, ‘Deduction of interest repayment on long-term mortgage loans.’ As of December 31st, the end of the tax period, you can receive a deduction if you own one home or do not own a home.
Let me explain it easily with an example.
If Mr. ‘A’ had owned two houses since 2020, he would have been excluded from the deduction.
If he sells one house on December 30th of this year, will he be able to receive an income tax deduction this time?
Since it was disposed of before December 31, the end of the tax period, you may be able to see a deduction opportunity this year if certain requirements are met.
Mr. ‘B’ purchased a residential officetel early this year. This is because the appearance and purpose were not much different from a house. However, he was excluded from the deduction. This is because officetels are classified as business facilities under the Building Act.
In addition to this, there are many deduction requirements. Household members who are not the head of the household can also receive the deduction, but there are conditions. Housing must be acquired only in the employee's name. Self-employed individuals who are not employees will naturally not be eligible for the deduction.
To receive a deduction, you must also meet the value requirements. Deductions are subject to change depending on the time of acquisition, so check them carefully. If you purchase a house between 2019 and 2023, the base market price must not exceed 500 million won. For homes purchased between 2014 and 2018, only homes worth 400 million won or less are eligible for the deduction, and for homes purchased before 2013, only homes worth 300 million won or less are eligible for the deduction.
Lastly, we also look at the timing of housing mortgage loan execution. If you have acquired an existing house, you can apply for a loan within 3 months from the ‘ownership transfer registration date’, and if you have purchased a house, you can apply for a loan within 3 months from the ‘ownership preservation registration date’.
Tax issues that seemed difficult can be interesting to look at on a case-by-case basis. This time, we will look at whether a deduction is possible based on borrowed money and title.
If the husband, a worker, purchased a house and borrowed money himself, he would naturally be included in the deduction. However, if her wife borrows money, she is unfortunately excluded from the deduction. This is because there is a mismatch between the owner and the debtor. Of course, even if you purchase a house in your wife's name and borrow money in your husband's name, you will not be able to claim the deduction.
These days, many couples acquire houses in joint names. Even in this case, deductibility will vary. If a house is purchased in the joint names of a husband and wife and the loan is borrowed in the husband's name, both are deductible.
However, what happens if the house is in the husband's name, but the loan is borrowed in joint names with his wife? The correct answer is ‘△’. Only the interest repayment amount corresponding to the employee's debt burden will be deducted. Even if you borrow a jointly owned house in joint names, the result is the same.
The deduction amount varies greatly depending on the repayment period and method. Wouldn’t it be a bad idea to check before executing a loan?
First of all, if the repayment method is less than 10 years, the deduction is not possible. The Korean government and National Assembly seem to be recommending fixed interest rates and non-deferred installment repayment methods.
First, the repayment period is divided into those where the repayment period is 15 years or longer and those where the repayment period is 10 years or longer. If the interest rate is fixed for more than 15 years and the non-deferred installment repayment method is applied, you can receive a deduction of up to 18 million won. If the interest rate is fixed for more than 15 years or the non-deferred installment method is applied, you can receive a deduction of up to 15 million won. The deduction limit for other items (variable interest rates, etc.) will be greatly reduced to 5 million won. In addition, if the loan is for more than 10 years and has a fixed interest rate or falls under any of the non-deferred installment repayment methods, only up to 3 million won will be deducted.
I only looked at the basics of ‘long-term mortgage loans’. The level of difficulty is not easy. However, since the income deduction amount is so large, it would not be a bad idea to keep it in mind. I will come back with a better post next time.