1031 exchange for purchasing DVC?

[BoardwalkSuzy]

Has anyone tried to do a 1031 with a seller of resale points, or perhaps direct from Disney for a 1031 tax free exchange? If a seller is motivated, the often are willing to cooperate, although adds a little time to the transaction process. I have an intermediary CPA that I always use for property exchanges, that just charges a flat rate that is reasonable. Only thing is, Disney would have to allow for me to rent out the points first 2 years to qualify - but 2 years goes by fast. Hear that the current requirement is no commercial use, defined as 20+ reservations made a year for others. I would just be doing one reservation perhaps per year, maybe two for another person.

Has anyone done a 1031 to buy DVC points? Is it permitted? Has anyone done a 1031 in selling your DVC points to avoid capital gains after you had to rent out your points out last few years of contract?

 

[SuzanneSLO]

[snip]The drawback with any exchange, though, is that have to rent points out for first 2 years, before can use yourself, so must be patient. I've done several times now, though - 2 years goes by fast. [snip]

I am not sure I understand your question since it sounds like you have already done this before? I would guess that DVD would never cooperate as your intention to buy the property as an investment sounds too much like commerical use, which is prohibited. -- Suzanne

 

[Dean]

Has anyone tried to do a 1031 with a seller of resale points, or perhaps direct from Disney for a 1031 tax free exchange? If a seller is motivated, I would think they would be willing to cooperate, although adds a little time to the transaction process.

I'm about to sell a property that generates a loss every month, and is a headache to manage. The property will probably only bring a small amount of net profit - but still like to shelter ALWAYs from paying taxes, never missing any opportunity to do so. This is a property I have never lived in so don't qualify for 2 out 5 year tax free exemption. I have an intermediary that I always use for property exchanges, that just charges a flat rate that is reasonable.

The drawback with any exchange, though, is that have to rent points out for first 2 years, before can use yourself, so must be patient. I've done several times now, though - 2 years goes by fast.

Has anyone done a 1031 to buy DVC points? Has anyone done a 1031 in selling your DVC points to avoid capital gains - for those who perhaps bought OKW way back when? Does having several different contracts at a single resort allow for separate personal property, or when you "add-on" do the two contract then constitute one piece of personal deeded property?

My understanding is not partly because it's have to be for investment purposes and it'd be very difficult to make that case with DVC. The other issue is you really don't own real property with a non fixed unit/fixed week timeshare. You may want to email Dave McClintock this question, that's what I'd do if I had interest in the issue.

 

[BoardwalkSuzy]

My understanding is not partly because it's have to be for investment purposes and it'd be very difficult to make that case with DVC. The other issue is you really don't own real property with a non fixed unit/fixed week timeshare. You may want to email Dave McClintock this question, that's what I'd do if I had interest in the issue.

So far I have one contract in the works for BWV, and it does read that I am purchasing a fixed unit ownership -a deeded interest in a particular unit at BWV, so that looks like real property ownership to me, even though Disney lets you use the ownership as points.

The IRS probably wouldn't allow it, as it does conflict with "intent" purposes - intent has to be for investment use only, and Disney doesn't allow for that, unless they make an exemption for the 2 years needed. I have purchased properties through 1031 exchanges, that I rented out for several years, and then ended up having to move into them for some reason. I'll ask the DVC guide and just see what they say. Motivated sellers sometimes will make exceptions so am curious now if they would.

I'll let you know what I find out - most likely answer will be "NO".

Article on subject from Asset Preservation, Inc
A Leading National § 1031 Qualified Intermediary- DVC fits description of variation (b) below:

WHAT ABOUT A TIMESHARE?
There are generally two types of timeshares that can be purchased by a taxpayer:

a) The first variation was widely promoted in the 1970's and 1980's and generally consists of a right to use a type of unit at a particular location for a specified period of time. These are generally considered personal property and are not eligible for §1031 tax deferral.
b) The other variation has become more popular in the past 10-15 years and generally consists of a taxpayer purchasing legal title, not merely rights to use a property, to a specific unit for a specified period of time. This second variation is generally considered real property and may qualify for §1031 tax deferral.

Even if the timeshare owner has title to a real property interest, they should be able to support that the primary intent for holding the timeshare is for investment purposes. In Dewey vs. Commissioner, the IRS did not allow §1031 tax deferral because they determined the taxpayer's primary purpose for a two-week timeshare purchase was personal enjoyment and not for investment purposes.

As with any §1031 exchange, the taxpayer should be able to substantiate that the primary intent for holding the property was either for investment or business purposes.

Asset Preservation, Inc
A Leading National § 1031 Qualified Intermediary

 

[Dean]

So far I have one contract in the works for BWV, and it does read that I am purchasing a fixed unit ownership -a deeded interest in a particular unit at BWV, so that looks like real property ownership to me, even though Disney lets you use the ownership as points.

The IRS probably wouldn't allow it, as it does conflict with "intent" purposes - intent has to be for investment use only, and Disney doesn't allow for that, unless they make an exemption for the 2 years needed. I have purchased properties through 1031 exchanges, that I rented out for several years, and then ended up having to move into them for some reason. I'll ask the DVC guide and just see what they say. Motivated sellers sometimes will make exceptions so am curious now if they would.

I'll let you know what I find out - most likely answer will be "NO".

Article on subject from Asset Preservation, Inc
A Leading National § 1031 Qualified Intermediary- DVC fits description of variation (b) below:

WHAT ABOUT A TIMESHARE?
There are generally two types of timeshares that can be purchased by a taxpayer:

a) The first variation was widely promoted in the 1970's and 1980's and generally consists of a right to use a type of unit at a particular location for a specified period of time. These are generally considered personal property and are not eligible for §1031 tax deferral.
b) The other variation has become more popular in the past 10-15 years and generally consists of a taxpayer purchasing legal title, not merely rights to use a property, to a specific unit for a specified period of time. This second variation is generally considered real property and may qualify for §1031 tax deferral.

Even if the timeshare owner has title to a real property interest, they should be able to support that the primary intent for holding the timeshare is for investment purposes. In Dewey vs. Commissioner, the IRS did not allow §1031 tax deferral because they determined the taxpayer's primary purpose for a two-week timeshare purchase was personal enjoyment and not for investment purposes.

As with any §1031 exchange, the taxpayer should be able to substantiate that the primary intent for holding the property was either for investment or business purposes.

Asset Preservation, Inc
A Leading National § 1031 Qualified Intermediary

I've been told by those in the know previously that 1031's weren't possible with timeshares unless POSSIBLY used ONLY for rental and only for truly deeded units. The info I've seen suggests that timeshares are eligible but that one could make an argument between any fixed ownership vs floating option. As I read it DVC wouldn't fit the definition as included because it's not a legal title in the true sense but a RTU for s specified time. Plus I think the personal use would automatically disqualify it. As I noted, Dave M is the man on such matters, I'd contact him through TUG or Timesharing today. I did search back through TST for several years but didn't see any reference to it in the yearly index issue. Here's a thread on TUG about the issue a couple of years ago.