TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, September 8, 2013

Bartlett: The Imputed Rent Tax Expenditure

For RentNew York Times:  Taxing Homeowners as if They Were Landlords, by Bruce Bartlett:

Continuing my series on tax expenditures, I want to discuss an obscure one: the imputed rent that homeowners get from living in their own homes. ...

The exclusion for imputed rent is ... untaxed simply because of long practice, not because Congress or the IRS ever said so, although a 1934 Supreme Court case, Helvering v. Independent Life Insurance Co., suggested that a tax on imputed rent might be considered a “direct tax” requiring apportionment. ...

The Department of Commerce’s Bureau of Economic Analysis calculates imputed rent on an annual basis and includes it in personal income, which is a major component of the gross domestic product. The data is typically found in Table 7.12 of the national income and product accounts, which have not yet been updated for 2012. Last year, the B.E.A. calculated that net imputed rental income was $284 billion for 2011. That includes depreciation or capital consumption, but does not include an adjustment for routine maintenance, mortgage interest or property taxes, which should be deductible.

It’s important to note that this $284 billion figure for imputed rent represents the bulk of rental income attributed to people in the aggregate data for personal income. In 2011, total rental income, net of depreciation, was $409 billion, of which $126 billion was received in monetary form. The rest was imputed rent.

The Treasury Department calculates that the tax expenditure for imputed rent – the revenue that would be raised if it were taxable – will be $75 billion next year and $437 billion from 2014 to 2018. That makes it the fourth-largest tax expenditure (see Page 254 in the “Federal Receipts” section of the federal budget). ...

The point of this discussion is not to recommend the taxation of imputed rent, which Congress is extremely unlikely ever to adopt. It is to show that the most complicated question in terms of tax reform has nothing to do with deductions and credits, as is commonly believed, but rather what is “income.”

For individuals with only wage income, the issue is simple. But as soon as investments enter the equation, the question becomes more complicated, and that includes investing in housing by buying a home to live in. I will have more to say about defining income for tax purposes in future posts.

Tax | Permalink


The phantom of imputed rent goes to show how lucky we are not to be ruled by economists.

Posted by: Jake | Sep 8, 2013 8:35:01 AM

What an enormous waste of everyone's time.

Posted by: Jack Bogdanski | Sep 8, 2013 7:26:32 PM

This seems like a silly debate. If you analogize the notion of imputed rent/income to the grantor trust rules under Subpart E of the Code (sections 671 to 679), this wouldn't be taxable income anyway -- because the renter is dealing with himself, or his tax alter ego.

Posted by: Blanche Christerson | Sep 9, 2013 6:12:15 AM

You would almost think this was an April Fools Joke. But sadly, but amusingly, it is serious. Why stop there? How about the "imputed" income from NOT buying lottery tickets? By not buying lottery tickets you are wealthier than if you bought lottery tickets (insert idiot study by bored economists for citation) and that accession to wealth is currently not being taxed. And when this gross breach of economic reality is remedied maybe we could then tackle couponing, garage sales and pop bottles.

Posted by: George | Sep 9, 2013 8:27:10 AM

It should be obvious that a tax on imputed rent is indistinguishable from a tax on the mere ownership of the property, which is a direct tax. Moreover, if one adopts the Glenshaw Glass definition of income as an accession to wealth, imputed income doesn't qualify because one's wealth remains the same.

Posted by: guy helvering | Sep 9, 2013 8:29:20 AM

The principle of imputed income says that you must pay tax on the income which could be earned from anything you own. Logically, it applies to your body as well. If you could hire yourself out for $X per year, you owe tax on that $X even if you wanted to retire. This is slavery to the government.

For a thorough discussion explaining why cash income is a much more appropriate basis for tax liability, see the Dodge paper at

Off topic: What's with partially entered comment text erasing itself when the page refreshes? The old software never did that.

Posted by: AMTbuff | Sep 9, 2013 10:21:14 AM

Do I have imputed service income because I made myself a sandwich? Imputed royalty income because my parents derived entertainment from the use of my children this weekend? Imputed management income because spent some time on family investments this morning? I believe all these are also "untaxed simply because of long practice, not because Congress or the IRS ever said so."

Posted by: Yo Gabba Gabba | Sep 9, 2013 1:14:23 PM