IMPUTED RENT OF OWNER‐OCCUPIED DWELLINGS UNDER THE INCOME TAX

Abstract

MOST ECONOMISTS agree that the rental value of a dwelling is part of the income of an owner-occupant. The services of the dwelling give the owner power to satisfy his wants, and that power is susceptible of valuation in terms of money.' In support of the view that the imputed rent of owner-occupied houses is income, the British Royal Commission on the Taxation of Profits and Income advanced two arguments: (1) the owner could rent his house he wished, and his failure to do so indicates that the value of the occupancy to him must be at least equal to the rent foregone; and (2) an owneroccupant is better off than a tenant with the same money income.2 The commission might have added that the homeowner has the alternative of investing his capital in other assets, and the choice of a house shows that he considers the return from it superior to the yield of other income-producing investments. The imputed rent of owner-occupied houses is taxable income in the United Kingdom and many other countries. In the United States, however, imputed rent has never been included in the base of the federal income tax. The state of Wisconsin taxed the estimated rental value of owner-occupied residential property under its original income tax law of 1911 but discontinued this practice in 1917. Many economists have favored the inclusion of imputed rent in taxable income for purposes of the federal tax. In 1921 Haig concluded that this income should be taxed if it is practicable to evaluate it.3 Taxation of imputed rent has been recommended by Simons, Vickrey, Pechman, and others.4