Are DVC interest payments tax-deductible?

[teacher1]

Thanks to everyone for advice on where to purchase, we've decided on BWV (my favorite anyway).
Now, some questions not even my accountant could answer: (1) if we finance, are interest payments tax deductible as a second or vacation home?
That would definitely make me finance a larger amount.
(2) How much are closing costs usually (total or percent-wise)? Is there any company re-selling that doesn't charge closing costs?
Thanks in advance for any help you can give us.

 

[JimMIA]

Thanks to everyone for advice on where to purchase, we've decided on BWV (my favorite anyway).

WOW! One post and you decided? That's a new record!

Now, some questions not even my accountant could answer: (1) if we finance, are interest payments tax deductible as a second or vacation home?That would definitely make me finance a larger amount.

That is probably one of those "it depends" questions...and your accountant is probably the best source of information. Having said that, what does it depend on? If you buy direct and finance through Disney, I would guess it is a mortgage and therefore deductible. If you buy resale and finance by using a home-equity line, no question it is deductible. No matter how you buy, if you finance with just a signature loan, I would say it is probably not deductible. But then, I'm not an accountant...not that they're bad people...

(2) How much are closing costs usually (total or percent-wise)?

There are minimum charges of about $350 up to whatever. I recently bought a $20,000 contract and they were $610.

Is there any company re-selling that doesn't charge closing costs?

The closing costs are charged by the closing agent/title company, not the realtor. Those are two different companies. The realtor charges commission, but the seller pays those, not you. You can use any licensed closing agent you want; you're not bound to use the company used by your realtor...although one who does a lot of DVC resale contracts probably knows what they are doing.

 

[RichAyers]

I think you need a new accountant!

Rich Ayers

 

[barkley]

because disney actualy breaks down our annual statements to show the portion of dues that go to property taxes that portion is deductable as well.

 

[Caskbill]

Keep in mind that in the past there were limits on what you could and could not deduct. Haven't kept up with it so don't know current laws.

But, in the past you were limited to two mortgage deductions. Usually that's a primary residence and a secondary mortgage. The 2nd mortgage could be any of the following:

Home equity loan
2nd mortgage on primary residence
A vacation home or timeshare
A fully self contained RV (eating, sleeping, bathroom facilities)
A fully self contained boat (eating, sleeping, bathroom facilities)
A log cabin in the woods, hunting cabin, etc.

If you already have one of the above, besides your primary residence loan, then you may not be able to deduct your Disney purchase as a 3rd deduction.

However, I'm going back 12 years to when we purchased DVC and still had a regular home mortgage and an RV loan which we were deducting interest, and therefore could not deduct Disney directly. A lot may have changed in 12 years, so find an account who knows for sure.

 

[Dean]

If you don't have another second home to deduct and buy from DVC or do a refi or home equity to pay for it, it should be tax deductible. If you buy on the resale market I'm not aware of anyone that will finance with the timeshare as the collateral. The only company I'm familiar with in financing a timeshare is tammac and it's a personal loan from what I have been told, thus not deductible.

It is my opinion that almost everyone should buy with cash, the exception might be if you had a large sum coming in and planned to pay it off soon. The tax deductibility is small potatoes compared to the finance costs. If one can't afford to buy with cash, they should make sacrifices to be able to do so. I know there are people that just can't get their act together and save up the money but, IMO, this is not a reason to finance.

 

[brivers222]

We used our Disney finance as a tax deduction no problem

 

[JMF]

I think you need a new accountant!

Rich Ayers

Exactly. I'm a CPA and they're deductible provided you don't meet any limitations on your itemized deductions, agi limitations, AMT tax or if this is your SECOND vacation home.

J

 

[rascalmom]

What about the tax deductibiity of financing on an add-on?

We are splitting our purchase into two contracts to take advantage of the 100 point incentive & to have two contracts to later leave to our 2 dd's. Since they are both SSR, would all of the interest & taxes be deductible (if we otherwise qualify), or only the I & T on the master contract?

 

[CarolA]

I have not split the financining but have deducted the taxes on more then one contract.

I agree with Dean. When I reseached this and discussed it with one of the tax CPAs we agreed that interest was only deductible if secured by a property. Which means you either have to have your home or your DVC securing the loan. Tammac is a personal loan unsecured by the property which is also why thier rates are so high. (I am a CPA, but don't do tax) I did use Tammac but only to cover the period between my great deal and some cash coming in! LOL!

 

[teacher1]

Wow! This really IS a helpful discussion board! Well, Caskbill's reply cheered me up, but Dean brought me back down to earth. I should have been more specific - we're NOT buying from Disney directly, b/c we don't really like SSR & plan to buy through a reseller, & I don't want to take out a second mortgage just to finance a vacation home. If, as Dean says, "The tax deductibility is small potatoes compared to the finance costs" then we'll scrape the $ together or only finance until we can pay it off. We did pay another home, but it's where a family member lives (primary residence) and it's been paid off, but never had a vacation home of any kind, so this may be deductible after all ( I keep going back to Caskbill's reply). To the doubters who said we made up our minds after one post, we plan to visit the various DVC rooms to see first-hand, but I'd been doing research for a L-O-O-NG time. We love the quiet of WL, but the twinkly lights of Boardwalk, the little boat, sitting in a rocking chair on a veranda watching the Beach Club & people walking by.... (and ESPN zone a few steps away for DH's Dolphin games)....oh yeah, we're going with BWV, tax-break or not!

 

[Alexander]

Keep in mind that many, many, many people finance their DVC purchases. It is not a bad thing to do if that's what meets the needs of your family. Many others believe that you should not finance a timeshare purchase, but that is their opinion. Sometimes those that feel financing a timeshare is wrong sound like you are a bad person if you choose to finance (fiscally irresponsible, unable to handle your finances, etc). I know it's not intentional, but that is how it always comes off sounding. You know your families financial situation better than any strangers on a message board and you should do what is best for your family.

Best wishes on your purchase at BWV! And although it may be a little premature, welcome home! The only thing you will regret is not purchasing sooner!

 

[teacher1]

I agree that "to finance or not to finance" should be a personal question, but in my case I AM doing it on purpose. I don't have any children or other major deductions & DH and I file separately for various reasons (he has his own business, etc.) so either I give my $ to Disney or to the government. It's not that we couldn't pay for a DVC all at once, but it's now difficult to find anything that IRS will accept as a deduction. I'm even considering buying directly from Disney (SSR) b/c financing there wouldn't be a personal loan. (Read my next post.)
Thanks for all your advice, though, and you're right: wish I'd done it sooner!

 

[crisi]

If its not deductible, you are giving your money to Disney AND the government.

Even in the case of deductible interest, you are giving the interest to the bank, the government just reimburses you for a small portion of it. Which is why paying off your mortgage is a good thing even if you lose the tax deduction - unless you are going to invest it at a higher rate of return.

i.e. Lets say you pay $4,000 in home interest and pay 25% income tax.

You will continue to pay $4,000 in interest, the government lets you subtract that from your income, and you'll only have paid $3,000.

Pay off your mortgage and you'll have paid nothing in interest, you'll be $3,000 ahead.

However, if you could get invest the money you would use at a higher rate of return than your mortgage, you may end up better off in the end. However, and its a big if, you need to actually invest that money and get a decent rate of return to come out ahead. A 3% ING savings account probably isn't going to do it.

 

[JMF]

Think folks....THINK!!

Incurring interest ON PURPOSE just to get a tax deduction is, sorry to say, STUPID. If you don't think so, I'll tell you what.

You give me $1....and I'll give you 30 cents back. I'll do that ALL DAY LONG. Sound dumb? That's exactly what happens when you deduct your interest.

The only way to get ahead is to not spend that $1 to begin with.

J

 

[crisi]

Here is the way the "good part" works.

Lets say your home loan is 10% (because the numbers are easy). So if you pay $4000 in interest, you owe $40,000 on your home.

You have $40,000 from your long lost Uncle Ted.

You know a sure thing investment that will make you 10%.

If you pay off your mortgage, you will pay no interest
If you invest that money you'll make $4000
If you pay interest and deduct your interest, you'll pay $3000.
You come out $1000 ahead.

But you HAVE to invest that $40,000 - not spend it - to come out ahead. And you need to get an appropriate rate of return - at least, in this example 7.5% to break even. Get 7% and you'd be better off paying down the mortgage. And you need to be able to itemize on your taxes.

Now, DVC financing happens at a pretty high rate. It would be difficult to get a guarenteed return that would make taking out a DVC loan on purpose financially a sound decision. A home equity loan may happen at a lower rate, and may be worthwhile.

 

[LarryKeith]

I think that buying the DVC plan was the best investment I have ever made, regardless of the interest rate, the pleasure of the DVC is well worth it. Don't let the fact that you might not have enough to buy out right Stop You from purchasing the dream of Knowing that "I'm Going Back Soon, lets start plannig it".
I personnally refinanced a newer vehicle at a 3.55 interest rate at my Credit Union and Then purchased the 200 BCV points with my Disney Visa so I could make the 1% back, then paid off the Visa with the Truck Loan.
The reason I tell all this is just to say that HOWEVER YOU CAN GET IT DONE, DVC pays great interest to your sanity and your quality of life, don't let an interest rate stop you.

 

[teacher1]

Think folks....THINK!!

Incurring interest ON PURPOSE just to get a tax deduction is, sorry to say, STUPID. If you don't think so, I'll tell you what.

You give me $1....and I'll give you 30 cents back. I'll do that ALL DAY LONG. Sound dumb? That's exactly what happens when you deduct your interest.

The only way to get ahead is to not spend that $1 to begin with.

J

I understand that doing that IS stupid, but when you're going on vacation with the same money that you're getting back (at least some of it) it hurts less than when you have to dole out the $ to Washington and then save some more to pay for a Disney vacation. All I know is it's worked for me so far.