Ok, let’s say you have a $100,000 loan at just 2% interest, which is $2,000 a year. If you didn’t have the loan and had to pay the proposed tax on imputed rent instead, assuming a 5% annual return and 30% personal income tax rate, that would mean $100,000 × 5% x 30% = $1,500. Even at a low loan rate and high asset return and tax income rates you’d still be $500 better off by paying the tax. That still makes it look foolish to me to increase debt to save tax.

There is a system like this in Switzerland and it is common sense there, that you definitely have a loan on your house to avoid tax. Yes interest rates are much lower (around 2%). However, if you even invest conservatively, you still get 5% return, which you then have to tax again. It’s foolish there NOT to have a loan on your house!

The interest paid to the bank would be a lot more than the tax on the equity, so taking on more debt to avoid paying tax would be foolish.