Filling out a 1040 Schedule E for Rental Income

[mistysue]

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.

UGH where were you a month ago when I needed this information??? At least I'll have it for next year.

 

[supersnoop]

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

Gotta catch me first...

Brokers are required to send a 1099 for the rental income that they pay out. Some people get around it by renting through a Canadian company who may not be required to follow the US reporting requirement. So, maybe it's self-reported, and maybe the IRS already knows about it.

 

[cbyrne1174]

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.

Yea I’ve come to the conclusion that I’m just going to make sure I use 100% of my DVC points and only rent out my excess Wyndham ones. I have such an easier time renting bonnet creek than any other resort because people who “look” for good deals that aren’t brand obsessed find Bonnet Creek the best bang for the buck. It’s never taken me more than a week to find a renter for it and it has no depreciation because the points didn’t cost me anything and the deed never expires.

 

[kilik64]

Brokers are required to send a 1099 for the rental income that they pay out. Some people get around it by renting through a Canadian company who may not be required to follow the US reporting requirement. So, maybe it's self-reported, and maybe the IRS already knows about it.

Private rental between two consenting adults?

 

[mistysue]

Private rental between two consenting adults?

It would only be reported to the IRS if you're working with an organization that will report it or if you accept the money through a service that will report the income.
Regardless you are still required to report it on your taxes. It is income, just like if you do side jobs for people and get paid you are required to report that on your taxes.

 

[CraigInPA]

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.

Depreciation and Depletion are two entirely different concepts.

In depreciation, you can depreciate more than the total you paid (usually about 2x). The rationale is that your depreciation, over the depreciation period, would capture the value of your declining asset. Different classes of assets have different depreciation periods and schedules.

In depletion, you are doing a straight line deduction where the maximum deduction is equal to the total you paid. You see this concept applied mainly to things like oil wells and intellectual property (e.g., you buy the Beatles catalog for $1B and it will go into the public domain in 100 years, so you can deplete it on your tax return under a straight line deduction).

For open ended timeshares, you can't depreciate because you don't own enough of the timeshare to make you an equitable owner, and without an end date it is likewise ineligible for depletion.

But, I believe an argument can be made for DVC's fixed end date making it eligible for depletion.

I'm not an accountant, and I urge you to engage one before filling out your tax return using my opinion.

 

[mistysue]

Depreciation and Depletion are two entirely different concepts.

In depreciation, you can depreciate more than the total you paid (usually about 2x). The rationale is that your depreciation, over the depreciation period, would capture the value of your declining asset. Different classes of assets have different depreciation periods and schedules.

In depletion, you are doing a straight line deduction where the maximum deduction is equal to the total you paid. You see this concept applied mainly to things like oil wells and intellectual property (e.g., you buy the Beatles catalog for $1B and it will go into the public domain in 100 years, so you can deplete it on your tax return under a straight line deduction).

For open ended timeshares, you can't depreciate because you don't own enough of the timeshare to make you an equitable owner, and without an end date it is likewise ineligible for depletion.

But, I believe an argument can be made for DVC's fixed end date making it eligible for depletion.

I'm not an accountant, and I urge you to engage one before filling out your tax return using my opinion.

Thank you- This may be the argument I need. I am familiar with depreciation from some other assets, but have not had to deal with the idea of depletion.
I know I mentioned sort of in passing that our timeshare only had so many years on it, but might have needed to press that more to prompt opening the window. I simply asked about depreciating my timeshare, honestly not aware others didn't have end dates. It's not unreasonable that I ran into people who have only looked into other styles of timeshares.

 

[CarolMN]

Perhaps the key to remember here is that with DVC, you actually own a deeded interest in a Right-To-Use LEASE, that expires.

FWIW, (I have no credentials as an accountant, CPA or tax preparer), I am quite certain that many corporations deplete /depreciate leases. Some even capitalize them.

Tax rules are complicated. For example, just look at all the articles if you Google "Can you depreciate a lease?".

 

[GAN]

Every sure uses funny math. I don't understand, if you rent a room for (5) nights @ $200 =$1000. The fair value of the room is $500/night = $2500 ....you just LOST $1,500!

 

[sethschroeder]

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.

I just laugh because if you look at DVC value it's only going up with even less time on the contracts.

UGH where were you a month ago when I needed this information??? At least I'll have it for next year.

Unless you hire that CPA and they take responsibility not sure it matters if the IRS disagrees in the end.

Unless I have a contract with the individual stating they will be liable for errors in their advise I am not trusting it fully. Even then doesn't mean you personally won't be held responsible and have issues.

 

[mistysue]

I just laugh because if you look at DVC value it's only going up with even less time on the contracts.



Unless you hire that CPA and they take responsibility not sure it matters if the IRS disagrees in the end.

Unless I have a contract with the individual stating they will be liable for errors in their advise I am not trusting it fully. Even then doesn't mean you personally won't be held responsible and have issues.

I like to send them things incase there is something new to learn, but in the end I end up filing the way they are willing to help me out if I run into trouble.

 

[EYL]

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.

What law was passed last year? The law that I go with is "you earn income, you pay taxes". Is there a new law that I don't know about?

 

[mistysue]

What law was passed last year? The law that I go with is "you earn income, you pay taxes". Is there a new law that I don't know about?

People are acting like the rule that companies like PayPal have to report your income means that they now have to pay taxes they weren't supposed to be paying all along.
I find it weird too.

 

[Anthony1971]

I personally see issues with depreciation of DVC where it may be possible for other timeshares to an extent. When you buy DVC you are buying a right to use the land and a few square inches of a building but that all reverts back to… after X years so will you have to pay to take the building down at the end as other timeshares may state? we may have to?
the issues. You can not depreciate land so what part of the buy in was for the land lease? You can only depreciate a building bought for commercial rental purposes in this case. My contract not sure if others say different? Does not allow you to commercially rent. Even if it did you are assuming you will pay to remove the building at the end of its useful life. Not something anyone wants to pay. I would believe this and more is why a tax accountant will say you can’t depreciate.
in the end if you fill out your own Tax forms and assuming this is the ONLY questionable item on the return and your write off is within reason and not renting thousands of points with a very large amount in question the worst that will happen is an audit by mail in which the IRS will ask questions and you may need to pay the additional amount they don’t agree with plus interest. You can always Wright a letter asking for the interest back after stating an honest mistake and it will likely be granted.
I am not a tax accountant but am an accountant in the end (higher title with higher age ) and accountants will always take the safe path meaning if there is any doubt they will not advise to do something. Yes there are some that will. If you choose to follow great if you choose not that on you. If an accountant signs your tax return and you want something they advise against you can bet they will have that in writing from you and in the end it is you signing and certifying the information you supplied to the accountant is correct….

 

[GoingSince1990]

Here is a thought experiment. Imagine it is the year 2041, so BCV points are 1 year away from expiration. Let’s say that DVC points are renting for $50 per point, dues for that final year are $10 per point, so the value of BCV points is $40 per point in the resale market. If I buy BCV points resale for $40 per point, rent them out to a vacationer at $50 per point and pay the dues of $10 per point, I come out even. But what is my profit (if any) for tax purposes? Those claiming that depreciation is not allowed would calculate a taxable profit of $40, with taxes owed on that amount, which seems massively unfair given that there was no “real” profit. With my calculation the $40 of depreciation would wipe out the taxable profit, which seems very fair and reasonable.

 

[mistysue]

I personally see issues with depreciation of DVC where it may be possible for other timeshares to an extent. When you buy DVC you are buying a right to use the land and a few square inches of a building but that all reverts back to… after X years so will you have to pay to take the building down at the end as other timeshares may state? we may have to?
the issues. You can not depreciate land so what part of the buy in was for the land lease? You can only depreciate a building bought for commercial rental purposes in this case. My contract not sure if others say different? Does not allow you to commercially rent. Even if it did you are assuming you will pay to remove the building at the end of its useful life. Not something anyone wants to pay. I would believe this and more is why a tax accountant will say you can’t depreciate.
in the end if you fill out your own Tax forms and assuming this is the ONLY questionable item on the return and your write off is within reason and not renting thousands of points with a very large amount in question the worst that will happen is an audit by mail in which the IRS will ask questions and you may need to pay the additional amount they don’t agree with plus interest. You can always Wright a letter asking for the interest back after stating an honest mistake and it will likely be granted.
I am not a tax accountant but am an accountant in the end (higher title with higher age ) and accountants will always take the safe path meaning if there is any doubt they will not advise to do something. Yes there are some that will. If you choose to follow great if you choose not that on you. If an accountant signs your tax return and you want something they advise against you can bet they will have that in writing from you and in the end it is you signing and certifying the information you supplied to the accountant is correct….

Your contract actually states that your property is scribed as a portion, In this spot it gives a percentage, of a unit number. In the original documents the units are all portions of the buildings. They aren't truly big enough portions that you could walking and claim them, But you own a part of the building, not of the land.
Depreciation is certainly not tied to whether you will later have to pay to demo the building or nothing anywhere would be depreciable as most corporations sell their property, they do not demo it.