If you've ever rented points out, did you know you pay taxes on the income?

[disneyberry]

<font face="times" size="+0">I'm already scared as heck to post this poll, but this topic is just eating away at me, and I can't stop wondering. Renting is such a sensitive subject already... I'm not sure how this is all going to go over...

Anyway, this year I spent a large number of hours learning about the tax laws for rental income, how to report it, and what expenses are deductable, etc. Long story short, DBF and I ended up paying about 22% taxes on the small DVC rental income we made in 2003 renting out extra points.

That was a wakeup call to me because before, I didn't really factor in the cost of income taxes on DVC rental income. I'd only vaguely recalled seeing someone mention that you have to pay taxes on it, but never thoroughly researched it until I was doing our 2003 tax returns.

It got me wondering how many occasional renters (or the controversial frequent renters) actually know that you are supposed to report it on your tax returns and pay tax on the income? And... if you did know, did you actually report it?

('Cause depending on your tax bracket, if you rented points at $10/point, after taxes you would only have made about $7 to $8.50 per point.)

To view the Poll Results without voting, click here</font>

 

[Maistre Gracey]

Just a guess, but I bet the most common answer is missing...

Sort of. I kind of suspected, but didn't report it. Am not going to amend my old tax returns, and will not declare the income in the future.

Personally, I have never rented my points, so that is one bullet I have managed to dodge...

MG

 

[DBBN]

Yes, I always knew and I will always report the income. We rented for the first time in the summer of 2003. So this tax season is the first time our accountant is dealing with income form DVC Rentals. Every point is accounted for and all income is documented.

We own multi familty housing in our community and for income tax purposes we treat all income from rental sources the same. Be it from our tenants of 20 years, from renters who stay 7 days in a 2 bedroom villa at WDW or from other DVC members when I've transferred points from my account into theirs. We have great trust in our accountant and when he says "it has to be" he means it and we listen.

We further track the expenses associated with managing the rental. Expenses include but are not limited to; dues, FedEx charges, office supplies, etc. Of course expenses offset some of the income.

 

[Tigger1]

I have not rented any yet but I did suspect I would have to pay taxes. Did you know you have to pay taxes if you sale stuff at a gagrage sell. I bet they will send tax forms out to ebay sellers someday.

Tigger

 

[pirateeast]

I know if I rent my points I have to pay taxes on that money, both fed and state. Now the real ? is will i report this on my taxes when i do, well i'm unsure. My best guess is alot of people know it is taxable income when they rent out their points but choise not to report it as income, same as when they sell on ebay or anyother place. The ? i don't know answer to, nor do i really wish to know, when we rent out points are we to pay the local lodgeing taxes just as any motel, hotel, resort does when they rent out rooms? My best guess is the local goverment there would say yes.

 

[TnRobin]

I believe the IRS definition of income goes similar to this....

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1)Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2)Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities; ....

You get the gist. Everything you get is taxable


Keep in mind that income is a combination of the revenues you collect and the expenses incurred. Just because you charged $10 a point does not mean that all $10 is taxable. Please seek the advise of your tax professional for additional applicability of this portion of the US Code

 

[CarolMN]

I knew, but never really gave it much thought as I haven't rented out any of my points and have no plans to do so in the future.

I agree with Maistre Gracey - the most common answer is probably missing.

 

[dcfromva]

Originally posted by disneyberry
<font face="times" size="+0">I'm already scared as heck to post this poll, but this topic is just eating away at me, and I can't stop wondering. Renting is such a sensitive subject already... I'm not sure how this is all going to go over...

Anyway, this year I spent a large number of hours learning about the tax laws for rental income, how to report it, and what expenses are deductable, etc. Long story short, DBF and I ended up paying about 22% taxes on the small DVC rental income we made in 2003 renting out extra points.

That was a wakeup call to me because before, I didn't really factor in the cost of income taxes on DVC rental income. I'd only vaguely recalled seeing someone mention that you have to pay taxes on it, but never thoroughly researched it until I was doing our 2003 tax returns.

It got me wondering how many occasional renters (or the controversial frequent renters) actually know that you are supposed to report it on your tax returns and pay tax on the income? And... if you did know, did you actually report it?

('Cause depending on your tax bracket, if you rented points at $10/point, after taxes you would only have made about $7 to $8.50 per point.)

To view the Poll Results without voting, click here</font>

disneyberry,
Yes, you pay taxes on rental income. But, don't forget to deduct the expenses. Let's say you own SSR points... In your $10.00 per point rental scenario, you have to consider the original cost of the point. Let's say you purchased SSR at 89 per point-- (89 divided by 50 years = $1.78 per point per year). Then, you have your maint. expenses of 3.80 per point. Then, any interest expense if you financed your points. (There may be additional costs--did you use an escrow service to rent your points? Postage to send confirmation to renters, et'c) If you have no interest to consider (and no additional costs), your cost basis is $5.58 per point. So, I think $4.42 would be your income on which you would pay taxes....
-DC :ears: (glad I didn't rent any points as this looks like another tax headache )

 

[bom_noite]

While I am not advocating cheating on your taxes - how would the IRS ever know you rented your points? The only way I can think is if you rented it to a "company" and they reported it as a business expense.

 

[LIFERBABE]

If you do report rentals/transfers as income, doesnt that open up a whole new world of deductions also?

Im not disagreeing but asking.

Please consult your tax professional............but by deducting the costs of renting and the associated expenses it would pretty much be a wash. With rental income you could possibly deduct maintenance fees, Partial costs of airfare and lodging, trips to WDW for business purposes, meals, internet access or ebay fees to market your rental, etc. just like any business expense.

Would this not be the case?

 

[dcfromva]

Originally posted by bom_noite
While I am not advocating cheating on your taxes - how would the IRS ever know you rented your points? The only way I can think is if you rented it to a "company" and they reported it as a business expense.

bom_noite,
I can't say as I am privy as to all the ways the IRS checks compliance, but I did read an interesting book one time. It was written by a former IRS person who did audits.
The book talked about several types of audits the IRS did. There is one type of audit in which a very small percentage of folks are randomly selected. The audit involved going through all your bank accounts, et'c. and through every deposit in your bank account. If you haven't documented it as something other than income (like a rebate check from brand X), the IRS treated it as income. From these audits, the IRS comes up with formulas for checking compliance with other tax payers.
(It sounded like one of those things that are not likely to happen, but it sounded even less fun than a regular audit...)
-DC

 

[KNWVIKING]

NJ has 6% sales tax. Delaware has no sales tax. Believe it or not, people from NJ will sometimes go to DE and buy a major appliance or PC in order to save 6%.

On our NJ state tax form, there is a little section that allows us to report those out-of-state purchases and pay the applicable taxes to our state.

I'm curious if anyone has ever filled this section out.

 

[FredS]

Originally posted by dcfromva
bom_noite,
I can't say as I am privy as to all the ways the IRS checks compliance, but I did read an interesting book one time. It was written by a former IRS person who did audits.
The book talked about several types of audits the IRS did. There is one type of audit in which a very small percentage of folks are randomly selected. The audit involved going through all your bank accounts, et'c. and through every deposit in your bank account. If you haven't documented it as something other than income (like a rebate check from brand X), the IRS treated it as income.

For what it is worth, I don't believe that the "kinder, gentler" IRS can now do this sort of thing. While you are required to maintain records regarding income, you are NOT required to maintain records regarding every deposit to your bank account. At some point nearly every governmental requirement comes down to a "reasonable" standard and few would reasonably expect you to remember the source of every deposit to your account for years. So, the IRS has no legal right to assume any deposit that you don't recall is income on which you are required to pay taxes.

 

[bom_noite]

Very interesting on IRS and income.

 

[pumpkinboy]

Originally posted by dcfromva
...Let's say you purchased SSR at 89 per point-- (89 divided by 50 years = $1.78 per point per year)...

Using a different methodology, you could easily argue that the cost of those first year's points would be $10, since DVD is currently offering to buy them back from new buyers for that price thru MB. Taking the depreciation (bcs that's what it is, since DVC has $0 value at the end of the contract) early on is what most companies would do, and is surely how DVD is calculating ROFR price points. So pricing 1st yrs points at $10, 2nd yrs' at ~$7.55, 3rd yr at ~$6.80... is easily defensable accounting, and makes more sense than a straight-line method IMO.

So add to that your maintenence fees of $3.80, and postage and you are taking a loss on the rental of ~$4 a point, giver then SSR example. So since it's a wash at best, and a loss at worst, no reason to complicate your return with it, if you are not already reporting other rental income.

Still, it is best to consult your Tax professional about this anyway.

 

[PamOKW]

This whole thing can get a little hairy. There are also considerations of how long you stay at DVC whether it is a rental property or another home. If you stay at DVC more than 14 days it might be considered a home and you would not be able to deduct the expenses. I have to figure this out myself for next year's taxes.

Here's some information from the IRS

IRS Rental

FYI -- Connecticut income tax forms also contain all kinds of threats if one doesn't declare items that were purchased out of state or on the Internet.

 

[Doctor P]

FWIW, compliance audits ARE still done and the poster who indicated issues about bank deposits is technically correct. However, the issue of amount can also be at stake as that will matter with respect to whether it raises a red flag or not.

 

[pirateeast]

Originally posted by KNWVIKING
NJ has 6% sales tax. Delaware has no sales tax. Believe it or not, people from NJ will sometimes go to DE and buy a major appliance or PC in order to save 6%.

On our NJ state tax form, there is a little section that allows us to report those out-of-state purchases and pay the applicable taxes to our state.

I'm curious if anyone has ever filled this section out.

In North Carolina you have to file out a form for all internet and out of state purchases then pay the NC sales tax rate ontop of the rate you payed when you bought it, unless they took out NC state sales tax at time of purchas (they have a formula to use on the form)

 

[msdis]

dcfromva/ Doctor P- I am sure you are correct but I don't think the average wage earner who pays deductible taxes(off the top thru their employer) is at risk or that the IRS would care to perform such a task as scanning their bank accounts looking for a $5.00 rebate from Staples. I'm sure this is reserved for the "tips" earner, the self-employed, or anyone whose bank accounts show they couldn't possibly have the funds to support "meager" wages. They can also see income generated from unearned asset accounts and compare from one year to another to know who is suspect. I can see where this would be a great tool to get to the bottom of non reported income and to use as evidence though.

 

[Doctor P]

I would agree generally, except compliance audits, unlike regular aucits, are basically random and not really based on or a function of the characteristics of the taxpayer. Without hijacking the thread with this, I will just note that you never want to go through a compliance audit as they basically need to confirm EVERY line on your tax return (and, yes, this does include identity and age--a birth certificate needs to be produced for every person on the tax return). Fortunately, they do very few of these and the program was suspended for a few years, but was renewed relatively recently. The idea behind the program to to check general compliance with the tax laws.

More on point with the topic, this is one of the most complex areas of tax law and one that is actually poorly understood by many CPAs. I would advise counsel from your tax professional to see what he or she advises in your particular situation.