patrick.net

The govt has an interest in you owning vs renting, which is why it's structured like that. Owners can also deduct mortgage interest (at least for the time being). The idea is that home ownership breeds stability, lower crime, better standard of living, and eventually higher property values or expanding tax base as desirable neighborhoods expand. So they get it on the back end.

Roberto,

Thx for your comment. But:

- Interest deduction is another different issue. Consider you bougth the house by cash.
- Other expenses are also beyond my point. For argument sake, consider that you live in a country/situation where you don't have to pay any of them (or they are very very low).

My point is that income tax doesn't make any sense, because they can only tax you when there is money involved, not when you enjoy the same benefit without money.

If it was a business expense (e.g. an office space), it wouldn't matter how much you paid, because you end up deducting it.

Is trading houses (just for living) even legal?

Do you know that some celebrities just do this from years? Especially with more expensive houses rent from each other is a killer tax deal.

Everything must be legal; lease contract, market rent, real exchange of money, etc.

That's why taxes in general, and income tax in particular, are called "negative bridges." Normal bridges bring parties together to trade, so that division of labor can take place through these exchanges, so everyone can do more of what they are good at, so more goods and services of higher quality become available to the society.

Taxes usually extract from exchanges. When the rates are high enough, people revert to autarky or self-sufficiency, breaking down the economy and lower standards of living for the society.

What you have observed also apply to almost every activity in life: if you grow your own vegetable, there is no tax; if you get really good at growing vegetables, and have excess to sell to your neighbors, you are subject to income tax. Your neighbor can be an excellent baker, so long as she bakes for herself there is no tax, but if she bakes for you in exchange for your vegetable, both of you are subject to tax!

That's why eventually when society breaks down like in late Roman time due to heavy taxation and run-away inflation, people gave up freedom as citizens and sold themselves to the big estates, which were singular "house-keeping" units for tax purpose. Trade with the outside were minimized in order to reduce tax bill. Of course, we are a quite ways from that, so we hope.