I hate the "implicit income" viewpoint.

If I own my own house, I do so because I already paid for it. That cost me more at that time than the person who's renting pays in rent. So why should my owning my house be considered "implicit income" because I don't have to pay rent? It should be considered money I've prepaid.

And then there are similar situations. If I've paid off my car, is it implicit income because I don't have a car payment? If I don't own a cell phone, do I have implicit income on the amount of a cell plan?

For that matter, the homeless have lots of implicit income. That's not a useful way of analyzing their circumstances, though.

I feel like the "implicit income" idea has an unstated assumption: The "normal" situation is for you to be paying out every dime you receive, and if you don't, that part you don't spend is "income". I absolutely reject that view. The world is not entitled to my spending.

I don't think that's the assumption that it's based on. It's more like, when you own an asset, you get to benefit from the consumption of that asset.

You did not "prepay" for the consumption of that asset. You paid to own the asset, which entitles you to consume it while you own it, but the value you get from consuming it is not deducted from the resale value of the asset. Example: you buy a house in 2010 for $500,000 that would cost you $4,000 a month to rent. In 2012 you sell it for $500,000. During those two years you received $96,000 of value from owning the house. You are now $96,000 richer than if you had rented the house instead of buying it (minus expenses associated with the house, and opportunity costs of having your money tied up in the house).

It's true that the same reasoning applies to other assets. I would assume, but don't know, that the reason people don't talk about imputed income for other assets is that the amounts are just much smaller in most cases.

Well, dcolkitt was talking about imputed income in the context of tax advantages. I assumed (perhaps wrongly) that the subtext was that people who own houses should be taxed on the "imputed income" as if it were real income. That raised my hackles - perhaps wrongly.

Still... there's something funny in the "imputed income" accounting. Let's say I buy a house for $500,000. I live in it. I don't pay rent, though the house would rent for $4000/month.

Or, let's say I buy the same house, but don't live in it. I live somewhere else instead, paying $4000/month in rent. But I also rent out the house I own, receiving $4000/month in rent for that house. My net is $0... except that I probably pay taxes on the $4000/month I receive. But if dcolkitt's point is not that should have to pay taxes on the "imputed income" of owning my house, then the "imputed income" is exactly offset by the "imputed foregone income" - I could have rented out the house, but I didn't.

I think your example actually helps make the case for imputed income, because whether you happen to live in the same house you own has huge tax consequences, which doesn't seem optimal. Without imputed income you are incentivized to live in the house that you own, even if it is worth less to you than what you could rent it for, because that way you don't have to pay taxes on that consumption value.

If you had to pay taxes on the imputed $4k a month then you would prefer to rent it out to someone who actually values it at $4k a month, and move yourself to a house that is better suited to you.

Right. But then you've changed the default from "not having to pay tax" to "having to pay tax". That is, far more people live in the house they own than rent out the one house they own and live somewhere else. Right now the 5% (say) who rent out the house they own get taxed, the 95% who live in the house they own don't. The change you propose would result in the 95% now also being taxed. That's fair, I suppose, but it's also the most drastic change you could make to create fairness. You could, for example, offer the 5% that the rent they pay could offset their rental income for tax purposes.

So why change it in the direction you propose? We're back at my initial complaint: This turns into "Saving money rather than spending it deprives us of the tax we would have received, so we'll tax your saving as if you had spent it. Don't own a cell phone? Pay us the taxes that would have been on your monthly bill anyway. Don't own a car? Pay us the registration fee anyway. Walk to work? Pay us the gasoline tax anyway. Don't drink alcohol? Pay us the taxes as if you did. Don't smoke? Pay us the taxes on the cigarettes that you could have smoked. Don't visit national parks? Pay us the entry fees anyway."

Do you see that that's insane? But if it's insane, why isn't "imputed rent" as something taxable insane?

It's insane, but we're basically already there, on some levels.

Politicians have been using that method of accounting for years, when describing taxpayer savings.

And it's not quite the same, but the method of tabulating the number of deaths in Puerto Rico after Maria also comes to mind. No "receipts", just statistics of what the numbers should be.

This tax on "imputed income" actually exists in Switzerland for properties, with interesting effects on the market.

Could you provide some more detail on these interesting effects?

You also don’t get to claim 3.6% deduction of basis of the improvements (everything but the land) plus other rental related expenses if you live in it which you would if you rented it out. This has the effect of significantly reducing the tax owed on rented property throughout the course of ownership.

Similarly, rented property has an unlimited deduction on mortgage interest rather than the capped deduction available for owner-occupied housing.