Question

1. Explain, briefly, different tax treatment of housing changes the user costs for owner-occupiers, relative to landlords?

Answer 1

Net Imputed Rental Income: When a person buys a property maybe a house or a land and then rents it to someone else and the money which the landlord gets from that is then taxed by government.This is called as 'rental income'. It is basically the actual rental income on which the owner or the landlord is taxed. Net rental income is the gross rent less expenses such as tax on property,cost on maintenance ,mortgage interest payments,etc.

Deduction for mortgage Interest: Mortgage interest is the interest which the owner pays when he builds or buys a house. As long as the owner’s mortgage matches the required criteria throughout the year, mortgage interest can be deducted. One can claim the deduction for the rental properties they own.

Deduction for property tax: Property tax is the tax that the persons pays to the government based on the assets he own maybe a car,bike etc. In order for deduction we must itemize.One must form a list as to where the money is spent such as in medical expenses,buying a land,investing in something etc.It should exceed the amount of your standard deduction to claim deduction for property tax.

Exclusion of capital gains on primary residence:When we buy an asset for a particular price and then when we sell it for more than the purchase price to get high profit we may think that we have to pay a huge tax in the form of capital gains tax. But this is not true. We can keep most of the money.The tax code allows to exclude some of the capital gains.