Posted on 12/19/2012 2:43:21 AM PST by plsjr
We all know that the U.S. tax code is riddled with "loopholes", exemptions and deductions intended to incentivize certain activities. ... to the technocrats in the federal government, the tax you don't have to pay on the value of rent you don't have to pay because you own your home is a loophole. Read that last sentence again. Its called "The Imputed Net Rental Income on Owner-Occupied Housing" and the feds include it in their annual list of "tax expenditures." That term is how Washington officially refers to credits, deductions and exemptions. Here's how the federal government describes it:
Under the baseline tax system, the taxable income of a taxpayer who is an owner-occupant would include the implicit value of gross rental income on housing services earned on the investment in owner-occu-pied housing and would allow a deduction for expenses, such as interest, depreciation, property taxes, and other costs, associated with earning such rental income. In con- trast, the Tax Code allows an exclusion from taxable in- come for the implicit gross rental income on housing ser- vices, while in certain circumstances allows a deduction for some costs associated with such income, such as for mortgage interest and property taxes.
Let's say you own a home and your mortgage is $1,000 a month. If, however, you instead rented the home from a landlord your rent, let's say, would be $2,000 a month. To the mandarins at the IRS, you are "earning" an implied $1,000 a month because you own and not rent, and that "value" should be added to your taxable income. If you own your home out-right and don't have a mortgage at all, you would be "earning" $2,000 a month which the IRS thinks should be added to your taxable income.
(Excerpt) Read more at breitbart.com ...
There will be ‘a whole lot of people’ who will have to go off welfare and food stamps because they will be considered rich.
The government will discourage ANY home ownership.
(What happened to ‘everyone should own their own home?’)
In a market where there are still a significant percentage of SFDs sanding empty, comparable rents (where all SFDs fall within the gaze of the taxpukes) are LOW ~ so it's not the lucky guy who gets $4,000 a month in reality who sets the tone of the analysis ~ it's the AVERAGE of all comparable properties ~ with half of them getting $0 a month that must be used.
So instead of being a $100000/yr musician/song-writer I could have made $400000 a year as a pediatrist. So I should pay an additional $100000 in taxes on income I decided not to earn. Where do I send the check?..../sarc
Are you a movie star?
Your house is huge!
For those of you who don’t think this is real, this was first developed by the IRS in 1976 during the Carter administration. I was stunned when I found out about it.
As far as I know it is not in the tax code and it should stay that way.
Let me guess--another triumph for "auto-correct". (Millenium Falcon)
Speaking of crazy deductions, how about the uncapped deduction of state income taxes paid? Is this not a subsidy by the taxpayers in low state income tax and no state income tax states to the taxpayers in high state income tax states?
Yes, the concept has been around for a long time, buried away among the multiple alternative definitions of income that the economists have devised. “Income” is actually a quite slippery concept when you start looking at it closely. What do you count, and how?
IMHO, employer contributions to employee’s health insurance and pension plans should count as taxable income, as should all transfer payments including both Social Security and other welfare paynents. The insurance value of Medicare and Medicaid should count. Etc.
Inclusion of imputed rental income has never made intuitive sense to me for tax purposes, but the idea does make some sense if the purpose is to measure economic well-being on a consistent basis across the population, which I think is why the measure was first devised. A similar wrinkle is whether and how to count a number of wealth effects like the buildup of cash values in life insurance, unrealized capital gains, rising property values, etc. It’s fine to try to measure such things if one is trying to analyze the dynamics of wealth and income in the society, but transfering the concept into the tax arena is another matter. Of course, given that government is bankrupt, the lefties can be counted on to argue that if something can be measured, it can be taxed.
no ~ taxes are assessed on individuals ~ not states ~ so if you get lower taxes by chosing to live in Aransas than by living in California that’s your choice ~ not theirs!
My point is that if you live in Texas with no state income tax, you do not get any deduction for state income taxes paid so the federal government gets full freight from you on your federal income tax. If, however, you live in New York City and are paying over 12% of your income in state and local income taxes, you get to deduct those amounts from your income and the federal government receives less money from you than it would if you made the same income in a no-state income tax state. This amounts to a diversion of would-be federal tax revenues to spendthrift states, i.e., a subsidy by the taxpayers in Texas (Florida, etc...) of the bloated state budgets of the high-tax states. In other words, all other things being equal, Texas taxpayers pay a higher percentage of their income to the federal government than do New Yorkers or Californians.
There’s no diversion by the states ~ you chose where you want to live. Besides, federal tax levels ARE NOT determined by what is needed by the government ~ they’re willful, arbitrary and capricious in the extreme. No decision by any state can be traced to the results!
It makes sense if you’re going to be consistent with all the taxes on passive income we slap on those who invest in stocks or a business or whatever, rather than a McMansion on a hill.
(My answer would be to tax neither, but that’s another story.)
not to be too cynical but if we are going to continue to have an income tax, all income from whatever source derived MUST be taxed, or not taxed, on the same basis. That would allow individuals to treat themselves as a business and end up owing very little ~ at the lower end of the income spectrum.
My point is simply that as a result of the deduction for state and local taxes, low tax state residents (Texas) pay a higher net percentage of their income in federal income taxes than do high tax state residents (New York, California...). This means that Texans (and others) end up paying more than their fair share of federal taxes in order to make up the taxes not collected in the high tax states, due to the deduction.
Not really, you’re talking about active income and that is already either taxed like personal income (e.g., a subchapter S) or otherwise covered if regular corporate income.
The reality is that many, many small businesses put capital into their business and when they get a return on that it is taxed like regular income when in reality it is investment income.
If we tax investment income as highly as active income we will really be putting a major, major drag on the economy, as people will simply consume rather than invest.
Simply tax all income the same ~ at the lowest rate with the greatest number of deductions, exceptions, exemptions and credits.
All sales tax is deductible in states with no income tax.
There’s no making up going on in the structuring of federal tax rates. Seriously ~ they are simply willful, arbitrary and capricious ~ there is no rationale at all behind any of them, least of all hoping to make up for losses in one state by collecting more in a different state. Just doesn’t happen.
Do that and you’ll be heavily taxing anyone who decides to invest, rather than consume, their income after they’ve already paid taxes on it.
On the other hand, anyone who spends all of their income doesn’t have to pay any more than any sales taxes for spending it all.
That is a major tax hit on those who would do what is better for our economy—and manifestly unfair.
Someone with a bit more saved up might invest in something a bit beyond his control ~ stocks, bonds, simple bank savings ~ maybe a new car so he can travel to a better job. Someone with even more savings might open up a business and employ himself, or maybe just hire a manager to run the shop.
You work your way up the line and you'll find that NO ONE with some little bit of free money (not tied down by basic investments in meat, potatoes and condiments) gives up trying to make more money.
Current rules allow GE to not make a profit ~ so they didn't pay any taxes!
I want that part!
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