People say choosing between jeonse (a large refundable deposit, no rent) and monthly rent is arithmetic, not taste. True — but nobody tells you which numbers go into the arithmetic. Open the statutes and you find the legal cap on the conversion rate, the tax break for rent, and the tax break for a jeonse loan sitting in three different Acts, working in different ways.
1. What is the cap. The conversion cap is the lower of “10% per year” and “base rate + 2 percentage points” (Decree art. 9). At a 2.75% base rate in August 2026 that is 4.75% (our calculation). Turning a KRW 300m jeonse into a KRW 100m deposit plus KRW 800,000 rent works out at 4.8% — already over the cap.
2. What is the risk. The cap moves with the base rate — the Act itself contains neither “10%” nor “2%”; both sit in the Decree. Read the figure again at the date you sign.
3. How do I compare them. The tax treatment differs in kind: rent gives a credit of 15–17% (STRA art. 95-2), a jeonse loan gives a deduction of 40% of repayments, capped with housing savings at KRW 4m a year (ITA art. 52(4)). One comes off the tax, the other off the income.
What number are we comparing — the conversion rate
When part of a jeonse deposit is turned into monthly rent, the conversion rate asks what annual percentage that rent represents against the deposit given up.
Conversion rate (%) = (monthly rent × 12) ÷ (jeonse deposit − new deposit) × 100
Worked through — turning a KRW 300m jeonse into a KRW 100m deposit plus KRW 800,000 rent gives (800,000 × 12) ÷ (300m − 100m) × 100 = 4.8% a year (our own calculation). The calculator is in our deposit-to-rent converter.
What is the cap
Housing Lease Protection Act Article 7-2 Where all or part of a deposit is converted into monthly rent, the rent may not exceed the amount obtained by multiplying the converted sum by the lower of the following rates:
1. … the rate prescribed by Presidential Decree
2. the base rate published by the Bank of Korea plus the rate prescribed by Presidential Decree
Decree Article 9 (1) The rate under subparagraph 1 means 10 percent per year.
(2) The rate under subparagraph 2 means 2 percent per year. <amended 29 Nov 2016, 29 Sep 2020>
| Calculation | Value | Basis |
|---|---|---|
| Subparagraph 1 — the Decree rate | 10% per year | Decree art. 9(1) |
| Subparagraph 2 — base rate + 2pp | 2.75% + 2% = 4.75% | Decree art. 9(2) + Bank of Korea |
| The operative cap | the lower = 4.75% | Act art. 7-2, “the lower” |
Neither “10%” nor “2%” appears in the Act. The Act sets only the structure of taking the lower rate and hands both numbers to the Decree. And Article 9(2) has already been amended twice (29 Nov 2016, 29 Sep 2020) — a figure that changes without going through the legislature. That is why older guides quoting “+3.5%” should not be trusted.
Move the base rate and the cap moves with it. The Bank of Korea’s table shows 2.50% from 29 May 2025, raised to 2.75% on 16 July 2026 — so the cap rose from 4.50% to 4.75%.
And the provision opens with “where all or part of a deposit is converted.” It does not regulate the asking rent on a fresh monthly-rent contract. How to use it in negotiation is in our conversion rate guide.
Which side is better on tax
Special Tax Restriction Act Article 95-2(1) … an amount equal to 15 percent [17 percent for an employee whose total salary for the tax year is KRW 55m or less] of the rent paid (where the rent exceeds KRW 10m, the excess shall be treated as nil) shall be deducted from the computed global income tax.
Income Tax Act Article 52(4) Where the head of a household owning no housing … who has employment income pays principal and interest on borrowings to lease housing … an amount equal to 40 percent of that payment shall be deducted from employment income for the tax year. Provided, that where the sum of that deduction and the amount under Article 87(2) of the Special Tax Restriction Act exceeds KRW 4m a year, the excess shall be treated as nil.
| Item | Monthly rent | Jeonse (lease deposit loan) |
|---|---|---|
| Type | Tax credit — off the tax itself | Income deduction — off the income |
| Rate | 15% (17% at salary KRW 55m or less) | 40% of principal and interest paid |
| Ceiling | Rent counted up to KRW 10m | KRW 4m a year, shared with housing savings |
| Who | Total salary KRW 80m or less, etc. | Head of a household owning no housing + employment income |
| Basis | STRA art. 95-2 | ITA art. 52(4) |
They are structurally different. Rent is “deducted from the computed global income tax” (a credit); the jeonse loan is “deducted from employment income” (a deduction). A credit comes straight off the tax bill; a deduction comes off before the rate is applied — the same number feels different.
The “KRW 4m combined” ceiling is the part people miss — it shares a pot with the housing subscription savings deduction.
The rent credit gained a spouse add-on inserted on 23 December 2025 — the conditions are in our monthly rent tax credit guide.
Both provisions delegate the size and valuation limits of the eligible housing to Presidential Decree. We did not open those Decree provisions this time.
Turn the cap into a rent figure and you can see where the worked example stands.
So what do you put into the arithmetic
| Comparison | How to read it | Caveat |
|---|---|---|
| Conversion rate vs jeonse loan rate | If the conversion rate is higher, borrowing for jeonse comes out ahead arithmetically | Whether the loan is available and large enough comes first |
| Conversion rate vs deposit rate | If the conversion rate is lower, investing the deposit and renting comes out ahead arithmetically | Compare after the 15.4% interest tax |
| Conversion rate vs the 4.75% cap | On a renewal conversion the cap cannot be exceeded | It does not apply to a fresh contract |
This article does not declare a winner. Loan and deposit rates vary by person, moment and product and are not set by legislation, so we cannot state them. What we can verify is the statutory cap and the tax treatment.
Put the two reliefs on a salary axis and only one of them has a threshold.
What the numbers do not capture
- The risk of not getting the deposit back. That does not convert into an interest rate. The statutory protections are opposing power, priority repayment, minimum priority repayment and lease registration — see our jeonse contract checklist and Housing Lease Protection Act guide.
- Capital locked up. With jeonse the deposit cannot be used for anything else for the term.
- How long you plan to stay. A short stay means the deposit’s return date has to line up with your move.
- The middle option, semi-jeonse, is covered in our semi-jeonse guide. It lowers deposits, so more tenants in one building qualify as small-deposit tenants and Decree Article 10(3)’s proportional split bites.
Questions that keep splitting opinion
What happens if the cap is exceeded?
Article 7-2 stops at “may not exceed,” and says nothing about the effect of an excess or any right to recover it. We could not confirm this again.
Can I claim both reliefs?
Neither provision excludes the other in terms, but paying rent while also repaying a jeonse loan in the same year is unusual. Whether they stack cannot be settled from the text, so we do not assert it.
Which relief applies to semi-jeonse?
STRA Article 95-2 targets “rent paid”; ITA Article 52(4) targets “principal and interest on lease borrowings.” Semi-jeonse has both, so each test would be applied separately — but the practical handling cannot be read off the text; ask the tax office.
Where do I check the base rate?
The Bank of Korea’s “base rate trend” table lists each change date and rate. Because the provision says “the base rate published by the Bank of Korea,” that table is the source.
Is jeonse disappearing?
Market trends are not set by legislation, so this article states no figures. What the statutes support is that conversion has a cap, both sides have tax reliefs, and the deposit has statutory protections.
Choosing between them really is arithmetic. But of the numbers that go into it, only the conversion cap and the relief rates are fixed by law — the rest is your own rate and your own circumstances.
Sources
- Ministry of Government Legislation, National Law Information Center — statutory text — Housing Lease Protection Act Enforcement Decree, Article 9 (Limit on the Conversion Rate). Source of “10 percent per year” and “2 percent per year” and the two amendment dates. The parent provision is Article 7-2, which sets only the “lower of the following” structure.
- Bank of Korea — base rate trend — Bank of Korea base rate trend (list). 2.75% from 16 July 2026 (previously 2.50% from 29 May 2025), read directly from the table. This is the value the provision points to.
- Ministry of Government Legislation, National Law Information Center — statutory text — Income Tax Act, Article 52 (Special Income Deductions). Source of paragraph (4)’s 40% of lease-loan repayments and the KRW 4m ceiling shared with STRA Article 87(2).
- Ministry of Government Legislation, National Law Information Center — statutory text — Special Tax Restriction Act, Article 95-2 (Tax Credit for Rent). Source of 15% and 17% and “where the rent exceeds KRW 10m, the excess shall be treated as nil.”
Where to check further
- Jeonse loan rates and deposit rates. Neither is set by statute and both vary by person, date and product, so this article quotes no figure — and therefore reaches no “this side wins” conclusion. Pull your own from the Korea Federation of Banks consumer portal and put them in.
- Whether the rent tax credit and the jeonse loan deduction can both be claimed. The statutes alone do not settle it — the National Tax Service helpline (126) or the Hometax year-end preview answers it for your own case.
- What happens when the conversion cap is exceeded, and how to claim the excess back. Article 7-2 contains no such sentence — the Korea Legal Aid Corporation (132) and the housing lease dispute conciliation committees advise free of charge.
Written as of August 2026. Statutory quotations are the text as published by the National Law Information Center, the base rate was read directly from the Bank of Korea’s table, and what we could not confirm is listed separately above. When the base rate moves, so does the conversion cap — re-check the value at the time you sign. This article is general information, not investment or tax advice.
