The Most Absurd 'Loophole' in the Tax Code

Breitbart ^ | 8 Dec 2012 | Mike Flynn

[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.

[plsjr]

Looks like there are more reasons than zippy-care for hiring an outlandish number of additional tax-collectors.

[Little Pig]

So the assumption by the IRS then is that everyone *should* be renting. That they are living in their own house provides them with “income” in the form of money they *didn’t* have to pay in rent. By the same token, if they can conclude that you would shell out more to use public transportation than to own your own car, you’d owe tax on the difference there as well, and any other behavior that might cost you less than what the IRS thinks you should be doing.

[BCW]

So this is on the books, the FED is just not enforcing it - but it could - later down the road?

Nice...

So, If I watch the movie Star Wars and like it - the FED has already made the assumption that I might possibly built a Aluminum Falcon and start space exploration - and therefore, I should be taxed for possible transportation of two droids, an old man, and young boy who may or may not have something to do with bringing down the Empire?

Did I get that right?

[Safetgiver]

The ‘Imputed Tax’ scenario. It was projected this was coming under 0bama. Hold on to your shorts; Bubba is coming.

[sonofagun]

So this is on the books, the FED is just not enforcing it - but it could - later down the road?

The code includes an "exemption" from tax on the "additional imputed income".

They could drop the exclusion and we'd be paying taxes on money we don't actually recieve as income.

At least that's the way I read it assuming that is actually what the tax code says.

[WinMod70]

Go another step and apply that same thinking to work you do for yourself. Mow your own grass, pay yourself a prevailing wage for the time spent and declare the income.

[sonofagun]

Then again, the passage on the tax is not sourced in this article.

[Neidermeyer]

So the assumption by the IRS then is that everyone *should* be renting.
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You haven’t been paying attention ... The gov’t owns about 95% of the mortgages through FNM and FRE , they are the “man behind the curtain” that is pushing all the foreclosures through despite knowing that their ownership has been lost in the securitization process... They are also selling HUGE blocks of stolen homes to investor groups to be used as rentals ..

[GraceG]

So the assumption by the IRS then is that everyone *should* be renting.

We never own our own land, we rent it from the “king” that is government.

[Pollster1]

Next on the list should be the market value of “marital relations”, since at least a few married people get that benefit without paying the retail price. Will they require activity reporting or just assess imputed income based on average rates?

[RegulatorCountry]

Well I guess we’re entitled to “impute” depreciation and to write off repair costs, then. Sweet!

Thanks, Washington!

[Izzy Dunne]

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.

so... if I don't rent from Fred, I make $1000 per month, but if I don't rent from Joe, I make $1500 per month?

Tell you what - I'll not rent from Vinnie in New Yawk - then I'll make $4000 a month!

[RegulatorCountry]

Woohoo, we’ll all be rich. /s

[Portcall24]

Don’t say that too loud or they’ll be asking you to pay taxes on the $4K/Mth.

[I_be_tc]

Later

[muawiyah]

Read it again ~ when they impute rent they also impute depreciation and other costs associated with maintaining the property to be imputedly rented.

Notice that you do not currently get to deduct depreciation, or operating expenses (power, gas, sewer, water, paint, mowing, trimming, mortgage, trash removal) from your income.

Let's say Congress went totally nuts and decided to go after imputed income from owning a home ~ they'd set the initial value of the property at whatever it is on the market today ~ and the net rental income would be determined the regular way ~ gross rental income less deductable expenses and depreciation.

For about 99% of the individually owned SFDs, condos and trailers in America you'd be showing a loss! Actually, every time a large scale analyis of the situation has been attempted by anyone, they come up with a negative number.

Many people imagine their home value, as it increases over the years due to inflation, surrounding higher quality growth, and all the good stuff, is a serious personal profit center but it's not.

[muawiyah]

Read it again ~ when they impute rent they also impute depreciation and other costs associated with maintaining the property to be imputedly rented.

Notice that you do not currently get to deduct depreciation, or operating expenses (power, gas, sewer, water, paint, mowing, trimming, mortgage, trash removal) from your income.

Let's say Congress went totally nuts and decided to go after imputed income from owning a home ~ they'd set the initial value of the property at whatever it is on the market today ~ and the net rental income would be determined the regular way ~ gross rental income less deductable expenses and depreciation.

For about 99% of the individually owned SFDs, condos and trailers in America you'd be showing a loss! Actually, every time a large scale analyis of the situation has been attempted by anyone, they come up with a negative number.

Many people imagine their home value, as it increases over the years due to inflation, surrounding higher quality growth, and all the good stuff, is a serious personal profit center but it's not.

[Alberta's Child]

My understanding is that the tax code includes this "imputed income" for the purpose of establishing income levels for certain things (maybe taxation of Social Security benefits for different brackets?), not for the purpose of actually collecting taxes on the "imputed income."

If the Federal government ever began taxing this kind of "imputed income," smart homeowners would simply do what some of my associated have done: transfer the ownership of the home to a limited-liability corporation owned by the homeowner*, pay rent to the corporation, and have the corporation legitimately deduct every penny of repairs, insurance, etc. on the home when computing its "income."

The IRS would end up collecting less revenue in that situation than under the current scenario.

* One particularly creative guy I know has his entire family listed as shareholders in the limited-liability company that owns his home. They make a point of holding their annual shareholders' meeting in Orlando every spring ... and deduct most of the cost of their annual Disney vacation as a "business expense."

[fruser1]

Real estate in the city is pretty expensive. In some municipalities, even the parking space you own has a high dollar value.

I wonder what the value of a 6x6 square of sidewalk or alley is in the city. Lots of imputed income on the homeless.

[Safetgiver]

they’d set the initial value of the property at whatever it is on the market today ~Wrong. They’d set the value at what a similar abode WOULD rent for something, THEY deem is realistic. For instance, My 25,000 sq. ft. home would be deemed to be rentable for $4000 per month. I pay $785 a month for my payment which includes insurance, property taxes and school taxes as well as fire hydrant taxes and street light taxes. I may not deduct the taxes towards the value. They say, (the gov.’t) Your rent is $4000 a month, so you need to report 48,000 a year minus your principal ($195 a month) and pay taxes on that.