Do you pay income tax on rented points?

[WDWorld2003]

Just curious - if our resale purchase goes through (please cross your fingers) we will have to rent out the points for this year.

Do you have to claim the rented points as income? Thanks!

 

[jel0511]

Yes, since it's rental income.

 

[HorizonsFan]

If you claim rental income on points, is there a chance that the IRS will deny a deduction for interest on a vacation home? Does the "vacation home" now become a "rental property"?

 

[KNWVIKING]

What they don't know won't hurt me.

 

[jel0511]

HorizonsFan - things can get a little tricky there. If you're renting out a portion of your points, then it's still vacation home. If it's all of your points, and you do it OFTEN, then yes, vacation home becomes investment property. As long as the main use of the "points" is for vacation purposes(you actually occupy the property), then it's a vacation home . If you're renting out more than vacationing(occupying), then it becomes an investment property and is treated as a completely different animal. This is a timeshare, though it is a real estate interest, things are tricky. For instance, you own a home in NH. If you occupy it for 2 weeks per year, it is considered a vacation (second) home and all income is considered rental, and any mortgage interest is considered deductible. If you do not occupy it for two weeks per year, it is considered an investment property, with you being able to deduct some of the expenses of the upkeep on the property, but not interest on the mortgage.

 

[KNWVIKING]

Our DVC contract doesn't specifically prohibit renting points,but it does prohibit it from being used for commercial purposes. If anyone were to declare the income on their taxes aren't they treating their ownership as an investment/commercial property and in breach of their contract ?

 

[jel0511]

Yes KNWVIKING that clause is in our contracts. It does not prevent owners from OCCASSIONALY renting out points, just using the timeshare exclusively for profit.

 

[CarolMN]

There is a difference of opinion regarding the "commercial" clause in our contracts.

I believe it means that we are prohibited from operating a business out of one or more of the DVC units.

If you read the entire POS, quality checklist and other documents, you will read in more than one place that renting out your interest in DVC is permitted. However, Disney is careful to point out that when you do so, you are competing with Disney and thus cannot depend on being able to find customers all of the time. If you purchase points for that purpose, you may not make money.


P.S. IMHO, you should consult a qualified tax advisor re the rental income issue. It's not likely that the IRS would accept an anonymous opinion from an internet discussion board.

 

[PamOKW]

I think this is an area that some people are not taking care of and could be sorry about down the road. I remember doing just a quick look at the tax laws and timeshare rental income does need to be declared. I'd consult with a tax expert or at least read up on what needs to be done.

 

[Caskbill]

I did a search on Google and found this site. Look about 1/3 the way down the page. (Item 11.3)

http://www.unclefed.com/Tax-Help/irs-tt/15829.html

Apparently since DVC is nobody's real "HOME" then it is NOT excluded under the 15 day rule and apparently rental is taxable under IRS 1040- Schedule E.

Again, consult your tax advisor.

 

[eva]

I never thought about having to pay taxes on rental fees. We have never rented our points and probably never will, especially if you have to pay taxes. We pay about 30% so that would actually bring the profit per point down to about $7. Our 7 day cruise for next year is costing us 173 points per person in a catagory 6. If we rented the points that would only net us $1211 for 173 points. A catagory 6 costs $1349 per person with the Magical Rate Discount. We would actually lose in the deal if we rented.