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I'm semi-recently graduated from college. In my job(s) I've had a flex account that lets me pay for medical expenses tax free. Similarly for my commute I'm able to pay for my ticket with pre-tax dollars.

My understanding of this is that these things are necessities so I'm not being taxed on them normally. Is this the actual reason for the tax break? More importantly, if it is, why doesn't this apply to rent? I mean, I would put room and board on par with medical and commute expenses.

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    Any expense that used to drive income is claimed to be tax deductible.
    – liza liza
    Aug 26, 2014 at 10:56

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Law is a mass of special cases, informed by but not driven by some general principles. Tax law likewise. Don't try to make it make sense; you will only confuse yourself.

Not all "necessities" are deductible, only those which someone has explicitly passed a law to make deductible.

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  • Yeah, in short - there is no logic to our tax code, at least no logic other than the chaos of the mob.
    – Jared
    Aug 23, 2014 at 23:48
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    Most Tax laws in my country make plenty of sense to me. They are quite logic, and deductions are usually available where the expense has occurred to derive income, except for when social policy allows deductions where they usually wouldn't be allowed.
    – Victor
    Aug 24, 2014 at 13:04
  • So theoretically, something like a rent tax deduction could be something that we are allowed to deduct in the future?
    – Carlos Bribiescas
    Aug 24, 2014 at 23:02
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    @CarlosBribiescas - NO, rent will never be tax deductible in the future (unless the place you rent is the place you do your work from as explained in my answer), because there would never be a social policy promoting people to rent their place of residence rather than owning it. BTW - we don't even know which country you are from - as tax policies can be different in different countries.
    – Victor
    Aug 25, 2014 at 6:39
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    @jared Well, I'd say there's plenty of logic to the tax code: Politically powerful groups and causes get tax breaks; politically weak groups and causes don't.
    – Jay
    Aug 25, 2014 at 15:24
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The answer is simple. You can generally claim a deduction for an expense if that expense was used to derive an income.

Of course social policy sometimes gets in the way and allows for deductions where they usually wouldn't be allowed.

Your rent is not tax deductible because this expense is not used to derive your income. If however you were working from your home, example - you had a home based business, and you dedicated a part of your home for your work, say an office, then part of your rent may then become tax deductible.

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    The other common reason behind tax deductions is that it is a way for Governments to encourage behavior without mandating it outright. For example, home ownership, energy conservation, saving for retirement, etc.
    – JohnFx ♦
    Aug 23, 2014 at 23:27
  • @JohnFx - that is why I mentioned that sometimes social policy gets in the way to allow for deductions where they usually wouldn't be allowed.
    – Victor
    Aug 23, 2014 at 23:31
  • I may be misunderstanding but, how is my apartment not used to 'derive my income'? Not trying to be sarcastic, legitimately asking. I need somewhere to live in order to do anything..
    – Carlos Bribiescas
    Aug 24, 2014 at 22:58
  • Victor's comment is a serious oversimplification. Business expenses are one thing that is deductable. Medical expenses (above a fairly high threshold) are another. Some kinds of income are tax-advantaged versus other kinds of income. Some "investments" which don't directly produce income (eg energy efficiency improvements) may be eligible for tax rebates. It's all a compromise between encouraging some kinds of social behavior considered desirable, trying to maintain "fairness" (which has conflicting definitions), and still producing the revenue the government needs in order to function.
    – keshlam
    Aug 25, 2014 at 0:27
  • @CarlosBribiescas - your apartment is not used to derive income unless you do your work there. Since you do not do work in your apartment but instead go somewhere else to do your work then you cannot claim your rent as a deduction. You live in your apartment but you don't work there. You work to survive and live - you don't live to work, so in general, your living expenses cannot be claimed as deductions.
    – Victor
    Aug 25, 2014 at 6:35
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You could debate the "why"s of tax policy endlessly. There are lots of things in tax law that I think are bad ideas, and probably a few here and there that I think are good ideas. I am well aware that there are things that I think are good ideas that others think are bad ideas and vice versa.

To your specific point: I suppose you could say that having a place to live is a necessity. But most people do not live in the absolute minimum necessary to give them a place to sleep and protection from the weather. You could survive with a one-room apartment with a bed on one side and a toilet and some minimal cooking facilities on the other. Most people have considerably more than that. At some point that's luxury and not necessity. And if you want to push it, you COULD live in a cardboard box under a bridge, you don't NEED a house or apartment to survive.

Personally I think it's absurd that as a home-owner I get a deduction for my mortgage interest, while if someone were to rent an identical house with a monthly rental equal to exactly the same amount that I am paying on my mortgage, he would receive no deduction. The stated goal of that one was to encourage home ownership. But people who own homes are generally richer than those who rent, so the net result is that the poor are paying higher taxes to help subsidize the homes of the rich. And then the rich congratulate themselves on how they are giving these tax breaks to help make housing more affordable for poor people.

To reiterate @keshlam, tax laws only makes sense when understood politically. Yes, some people have fine ideas about what is fair and just. Others simply want tax breaks that benefit their business or people with tough financial situations that just happen by chance to resemble their own. Many of the people with noble ideas have little concept of what the implications of the policies they push are. Many of the ideas that some people view as worthy and noble, others view as frivolous, counter-productive, or even evil. Then you mash all these competing groups and interest together and see what comes out.

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Another way to look at it is that deductibles are intended as incentives or subsidies to particular industries (in this case the healthcare industry).

Guaranteeing a decent standard of living and making sure everybody can meet the costs of “necessities” can be achieved much more easily by a low tax rate on the first XXX$ of income and/or generic welfare benefits rather than any measure focused on making healthcare, food or whatnot cheaper or free under certain conditions.

Incidentally, many countries do have different forms of benefits or tax breaks for accommodation-related expenses.

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