Filling out a 1040 Schedule E for Rental Income

[cbyrne1174]

Has anyone on here ever filled in a 1040 Schedule E for DVC rentals on here? I figured out how to fill it in pretty easily for my Wyndham profit because it had an insignificant purchase price. I only paid a few hundred bucks for an ownership that has no expiration. DVC is trickier however because I want to learn how to write off my $4.77 cost per point per year purchase price since DVC actually has an expiration. I'm only renting out 13 points this year. I put my annual dues under maintenance (line 7) as $6.03 per point (SSR), my taxes (line 16) as $1.30 per point and my purchase price under line 18 (depletion) as $4.77 per point. Is there another place I put this as an expense or does it go under line 18?

BTW everyone on here doing rentals is going to have to do this next year because of the law that passed last year.

 

[BillPA]

good luck. You might want to use 2021 data.

 

[cbyrne1174]

good luck. You might want to use 2021 data.

For my 2022 rentals?

 

[Marionnette]

Has anyone on here ever filled in a 1040 Schedule E for DVC rentals on here? I figured out how to fill it in pretty easily for my Wyndham profit because it had an insignificant purchase price. I only paid a few hundred bucks for an ownership that has no expiration. DVC is trickier however because I want to learn how to write off my $4.77 cost per point per year purchase price since DVC actually has an expiration. I'm only renting out 13 points this year. I put my annual dues under maintenance (line 7) as $6.03 per point (SSR), my taxes (line 16) as $1.30 per point and my purchase price under line 18 (depletion) as $4.77 per point. Is there another place I put this as an expense or does it go under line 18?

BTW everyone on here doing rentals is going to have to do this next year because of the law that passed last year.


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I just give mine to our accountant and let him figure it out.

For my 2022 rentals?

You're filing a 2021 tax return.

 

[cbyrne1174]

I just give mine to our accountant and let him figure it out.

You're filing a 2021 tax return.

No I'm not. I just have it calculated for next year. The form doesn't change between years. Better to calculate everything so you know how much tax you owe the following year so you can properly budget for it.

 

[supersnoop]

I'm not a tax expert, but I've owned rental property and had to fill out a Schedule E before.

I don't think you get to include the original cost of the timeshare in your expenses. Instead, you would depreciate the property. But you're only allowed to depreciate business property, so I think you're out of luck here.

 

[cbyrne1174]

I'm not a tax expert, but I've owned rental property and had to fill out a Schedule E before.

I don't think you get to include the original cost of the timeshare in your expenses. Instead, you would depreciate the property. But you're only allowed to depreciate business property, so I think you're out of luck here.

So then why on earth do people talk about DVC being so good to rent out? The profit margins are less than Wyndham and both sell just as eaily.

 

[supersnoop]

So then why on earth do people talk about DVC being so good to rent out? The profit margins are less than Wyndham and both sell just as eaily.

I've always said the ROI on renting is terrible. It's the retained asset value that makes owning worthwhile, IMHO.

 

[legler2250]

I am not a tax expert either but it would seem that you would be able to deduct what you pay for annual dues from the cost per point you rent. So for example if you rent your points out for 18.00 per point and your annual dues are 8.00 per point, you would only be paying taxes on 10.00 per point no?

 

[cbyrne1174]

I am not a tax expert either but it would seem that you would be able to deduct what you pay for annual dues from the cost per point you rent. So for example if you rent your points out for 18.00 per point and your annual dues are 8.00 per point, you would only be paying taxes on 10.00 per point no?

Yea but that's $2.56 per point in taxes in my bracket, so you're only making $15.44 on something that costs you $11.70 when factoring in buy in costs.

 

[Best Aunt]

So then why on earth do people talk about DVC being so good to rent out? The profit margins are less than Wyndham and both sell just as eaily.

When I bought in, I thought I would never rent out my points. But I was not expecting a Pandemic many years later. I was not comfortable travelling, but other people were. So from my point of view, it was good to be able to rent out my DVC points. It's not about the profit margin for me. It's about being able to get some money for the points which I unexpectedly was not going to use myself.

 

[GoingSince1990]

On rentals I deduct the operating cost (but not the capital reserve), the real estate tax, and depreciation, calculated by taking my original purchase cost divided by the product of the number of points in the contract and the number of years remaining in the resort when I bought the contract, multiplied by the number of points rented out. This is equivalent to straight-line depreciation of the DVC contract over the resort’s life and seems highly defensible as we know with certainty that the contract will be worth zero on the resort expiration date. At any rate, over many years of using this method the IRS has never complained. (If the contract is financed you would also be able to deduct the interest payment applicable to the rented points).

 

[wnielsen1]

The problem with the tax implications of renting timeshares is that the IRS (or Congress) has never addressed timeshares. That leaves people and tax preparers to try and apply the existing rental real estate rules to timeshares and it is fairly messy to do so. Typically, rental real estate is depreciated using a life of 27.5 years and if you sell the property, you trigger something known as section 1250 recapture. Now, does that make sense for timeshares? I'd argue that it doesn't. What about dues? The capital reserves portion of dues should generally not be deducted against rental income - instead it should be added to the cost basis of the property, which comes into play when the property is sold. Does that make sense for timeshares? What if you hold the property until expiration and don't sell it? A total mess.

 

[supersnoop]

On rentals I deduct the operating cost (but not the capital reserve), the real estate tax, and depreciation, calculated by taking my original purchase cost divided by the product of the number of points in the contract and the number of years remaining in the resort when I bought the contract, multiplied by the number of points rented out. This is equivalent to straight-line depreciation of the DVC contract over the resort’s life and seems highly defensible as we know with certainty that the contract will be worth zero on the resort expiration date. At any rate, over many years of using this method the IRS has never complained. (If the contract is financed you would also be able to deduct the interest payment applicable to the rented points).

How do you recapture the depreciation if/when you sell the contract? While this seems "defensible," I don't think the risk of audit and penalties is worth the extra ~$1/point you save in taxes.

 

[GoingSince1990]

How do you recapture the depreciation if/when you sell the contract? While this seems "defensible," I don't think the risk of audit and penalties is worth the extra ~$1/point you save in taxes.

I keep detailed records in an Excel spreadsheet and while I don’t expect to sell my DVC, I would scrupulously follow the depreciation recapture rules if I ever did. And the IRS allows, and fully expects to see, depreciation as an allowable expense on rental properties. And taking my BCV points as an example, I would be fascinated to see them trying to argue that something that is worth tens of thousands of dollars today and will definitely be worth zero in 2043 is not a depreciating asset.

 

[AgentMama]

How do you recapture the depreciation if/when you sell the contract? While this seems "defensible," I don't think the risk of audit and penalties is worth the extra ~$1/point you save in taxes.

I believe it would balance against any gains. But I'm not a tax expert, I don't play one on TV, and have an actual tax expert do our returns.

 

[mistysue]

I know this is older but the boards keep putting it in front of my eyes -
in case anyone searching for the info, I had three different tax advisers tell me this year you absolutely can NOT depreciate a timeshare like this because you do not own the building itself. This means when you put it on your taxes, it is Amount collected, minus the deduction of dues (not including reserves portion).

Anyone can try it, but if you got caught (audited) things would likely not go in your favor so it may not be worth the hassle.

 

[kilik64]

Uhh is this self reporting only? How would the IRS know otherwise?

Gotta catch me first...

 

[mistysue]

Uhh is this self reporting only? How would the IRS know otherwise?

Gotta catch me first...

I know it puts me behind so many people in the game, but I take the stance of my taxes are a pain in the butt the first time, I don't want anything that can be questioned or needs to be discussed. So when I go to extra tax people to double check mine knows what she's up to and they all agree, I'm taking the safe side.

 

[GoingSince1990]

I know this is older but the boards keep putting it in front of my eyes -
in case anyone searching for the info, I had three different tax advisers tell me this year you absolutely can NOT depreciate a timeshare like this because you do not own the building itself. This means when you put it on your taxes, it is Amount collected, minus the deduction of dues (not including reserves portion).

Anyone can try it, but if you got caught (audited) things would likely not go in your favor so it may not be worth the hassle.

Redweek’s CPA disagrees, for one.
https://www.redweek.com/resources/articles/tax-aspects-renting-timeshare
And in the case of DVC, it seems undeniable that something that is guaranteed to be worth zero in 2042 or 2054 is, indeed, a depreciating asset.