Please explain the concept of imputed rent to me like I'm a 5 year old

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Nate79
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by Nate79 »

If imputed rent did not exist buying a home would be stupid. Why would you buy a home if it didn't give you value?
Northern Flicker
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by Northern Flicker »

Some postings above have complicated explanations that miss the mark. Imputed rent is a very simple concept. If you buy a house to live in, the imputed rent is just the money you don't need to spend on the rent you otherwise would pay to live in the house were you not the owner. That's it. You get to keep that money and instead have different expenses that come with home ownership.
Hyperchicken
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by Hyperchicken »

crossbow wrote: Tue May 04, 2021 1:24 pm I own my car outright and have never considered "imputed lease payments" because I don't see the lease payments I don't pay adding to my bank balance. What am I missing? :confused
That's how imputed <anything> is expected to work. Otherwise that would just be normal <anything>, not imputed. For instance, imputed income that may show up in your pay check. You are then paying income tax on the money that is not adding to your bank balance - it is merely not getting subtracted from your bank balance.
international001
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by international001 »

crossbow wrote: Wed May 05, 2021 2:46 pm
Still as confused as when I first started this thread seeking clarification. Are you saying that imputed rent is a thought concept associated with real estate taxation, and is not a thought concept for a Rent vs Buy comparison? If so, I follow. If not, )(*@#*&@(#*$^(@#^$&*@#(*$&@(#*%)(*!@(*$(^
Sorry for the confusion. I meant to say that imputed income is some 'value' you get without actually exchanging money. imputed rent is for the specific case of real state.

The tax part was my own obsession. It's difficult for governments to tax imputed income (but they try).
knowledge
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by knowledge »

From a economist point of view:

If the US passed a law that said you can own a home, but you cannot live in it (just go with it...), you'd have every dwelling/home owner transaction go through a marketplace (put aside bartering) and you could explicitly measure that market and figure out what that works out to in terms of GDP and the like. Imputed rent is a (mostly) theoretical exercise, but does have real world impact - it's a major part of GDP calculations whose flux can have impact to you and me.

There's justification to this, if you flipped the thought experiment so that magically everyone owned their own home and there were no rental payments through any marketplace - all else being equal - why should GDP be any different? Every person is in the same dwelling as before in the same situation. There's just a lot less of reported income (and expenses) because they are no longer explicitly measured.

Again, there shouldn't be an individual impact here. There is no taxation of imputed rent. If you decided to make your rent explicit by renting a neighbors house and them renting yours, you would note the income and associated expense on your tax returns and likely come out even (I think). You would just be making the govt economist's jobs a bit easier.
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Nate79
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by Nate79 »

Imputed rent is still taxed in some countries. Good luck telling their citizens it is an imaginary concept.
international001
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by international001 »

knowledge wrote: Fri May 07, 2021 4:33 pm From a economist point of view:

If the US passed a law that said you can own a home, but you cannot live in it (just go with it...), you'd have every dwelling/home owner transaction go through a marketplace (put aside bartering) and you could explicitly measure that market and figure out what that works out to in terms of GDP and the like. Imputed rent is a (mostly) theoretical exercise, but does have real world impact - it's a major part of GDP calculations whose flux can have impact to you and me.

There's justification to this, if you flipped the thought experiment so that magically everyone owned their own home and there were no rental payments through any marketplace - all else being equal - why should GDP be any different? Every person is in the same dwelling as before in the same situation. There's just a lot less of reported income (and expenses) because they are no longer explicitly measured.

Again, there shouldn't be an individual impact here. There is no taxation of imputed rent. If you decided to make your rent explicit by renting a neighbors house and them renting yours, you would note the income and associated expense on your tax returns and likely come out even (I think). You would just be making the govt economist's jobs a bit easier.
What is different between the utility of a house you own/live in and the utility of a pancake you cook/eat? (assume the cost of the ingredients $0)
If you sell the pancake to your neighbor and the neighbor sells theirs to you, you are generating GDP.
Same goes for other non-monetized utility, like a mother taking care of their children.

From my experience, US monetizes so many more things than other countries, so its high GDP per capita is a bit 'inflated'. It would be interesting to know how much.
Hyperchicken
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by Hyperchicken »

international001 wrote: Fri May 07, 2021 4:06 pm [...] It's difficult for governments to tax imputed income (but they try).
Imputed income (not rent) absolutely does get taxed as ordinary income. One reason to have it is when your employer is paying for your life insurance above certain threshold, this excess is taxable. I have it as a separate line on my paystub. This is "income" which I do not receive, but I pay income tax on it.
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bobcat2
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by bobcat2 »

Imputed rent is taxed in Switzerland as part of their federal income tax.
Imputed rental value is a notional taxable income on owner-occupied properties. It was introduced as part of the federal tax, which was collected as a defense tax during the Second World War. Homeowners pay tax on the rental income that they would receive if they were to rent out the property.

At first this sounds absurd. Why pay tax on income that hasn't been received? Closer examination shows that the imputed rental value aims to achieve a balance between tenants and homeowners in terms of the taxes they pay. This is because those who own residential property usually live more cheaply than if they rented the same property. In accordance with Switzerland's solidarity-based tax system, real estate owners are therefore required to pay more.
Link - https://www.credit-suisse.com/ch/en/art ... 01804.html



Inputed rent is important in America when you are retired. If you rent you have to come up with taxable income to pay the rent. If you own the home you don't. This is a significant tax break over 25 years or more of retirement. Larry Kotlikoff is tireless in pointing out that this is the biggest real estate tax break most homeowners get - far larger the mortgage interest tax deduction for most.


dodecahedron wrote: Tue May 04, 2021 3:24 pmHowever, in some cases imputed income is taxable to the person receiving it. For example, if your employer owns a home and allows you to live in it without paying rent, you will need to pay tax on the imputed income associated with living there rent-free (i.e., the fair-market rental value of the home.).
Apparently Allen Weisselberg and his son don't understand this simple concept.

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leeks
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Re: Please explain the concept of imputed rent to me like I'm a 5 year old

Post by leeks »

"Imputed rent" is the value you get from living in a house you own.

In this sense, "impute" means to assign a number to or to estimate.

A reasonable way to estimate the value you get from living in your house is to use the amount of rent you would have to pay to live there if someone else owned the house.
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