To revive the housing market, the owner-occupied home must be moved to Box 3, Peter Kavelaars, Professor of Economics of Taxation at Erasmus School of Economics, believes. In an article in Dutch newspaper De Telegraaf, he explains why.
The IMF recently suggested the owner-occupied home should no longer be taxed in box 1 of the income tax, but in box 3. After all, the owner-occupied home is also equity. This idea is not new; in fact, it has been suggested many times by tax scholars, including Peter Kavelaars. ‘It has to be said, by the way, that Box 3 is just as much of a monster as the owner-occupied home in Box 1, but for the time being we have to live with that,' Kavelaars writes in De Telegraaf. So why is the owner-occupied home in the wrong place in the current tax system?
‘That's because in Box 1 only active income such as business profits and earned income is taxed, while all capital income is taxed in Box 3. Now that the owner-occupied home is also equity, it belongs in Box 3. The only reason the owner-occupied home was placed in Box 1 was because, when the current tax system was introduced in 2001, politicians did not dare put it in Box 3, because that would have basically meant abolishing the deduction of the mortgage interest.’ According to Kavelaars, the owner-occupied home should therefore always have been in Box 3, and there are now even more reasons to introduce it.
‘In the first place, the owner-occupied home scheme has become an incomprehensible monstrosity in terms of regulation over the past 20 years,' Kavelaars writes. 'Not only can ordinary taxpayers no longer follow all the regulations, the same goes for most tax specialists. That problem is completely solved when the owner-occupied home is placed in Box 3. One simply takes the WOZ value of the house and that's all there is to it.’ A second argument is the low mortgage interest rate. ‘This of course makes it extremely easy to transfer the house, because the tax value of a low interest rate as a deduction item is almost zero.’