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

[Cruelladeville]

pumpkinboy--I agree with your thinking, so my points have depreciated to $0. That means that if I reported my renting my points, THE IRS would actually owe ME, rather than my owing them. So I did my patriotic duty, and didn't claim those points, since the US government is pretty much broke now, anyway. I had to do something to protect my future SS benefits.

 

[Kick it up a notch!]

How would anyone find out???

 

[disneyberry]

<font face="times" size="+0">Maistre Gracey, I did think about adding that option in the poll (that people don't report it or intend to amend their returns), but I didn't really feel comfortable asking people to say so, even if in an anonymous poll.

If it wasn't clear, personally I did make every effort to look into this before I completed my tax returns. My tax situation other than this is quite simple, so for now I do not use a tax advisor. I also had a suspicion that this area of tax law is very complex, and not that many advisors would necessarily have expertise in the area. In any case, I took the most conservative approach to my DVC rental income, and only deducted the few expenses that were specifically mentioned in the IRS publications as deductible. (For example, I'm not so sure you can deduct Property Taxes for rental purposes if you already deducted it on Schedule A. Also, the portion of our annual dues that applies to Capital Improvements is NOT deductible except as part of the adjusted cost basis that you use to figure your depreciation expenses - which BTW as I understand it, should be calculated using the MACRS 27.5 years method... it ends up being a very small number. Not what you would think...) Also, the mention of deducting travel expenses... I don't really believe any DVC owners could truly claim that they fly down to Orlando just for the purposes of facilitating a DVC rental.

IRS Publications 527, 946, 551 contain detailed info (pretty difficult to fully understand though, just like all IRS publications ). The Instructions for Form 4562, and for the 1040 Schedule E are also useful.

I also found the following two threads on the TUG very helpful:
http://www.tug1.net/tugbbs1/Forum1/HTML/004381.html
http://www.tug1.net/tugbbs1/Forum1/HTML/005921.html

BTW, I would argue that unless you stay at DVC more than 36 days a year, it's not possible to claim DVC as a "Dwelling Unit Used as Home" because the definition in Pub 527 is that you must use DVC for personal purposes for more than the GREATER of 1) 14 days, or 2) 10% of the total days it is rented to others at a fair rental price. Since DVD rents out DVC units to the cash paying public all the time, I would guess that at least one DVC room is rented out every day of the year. 10% of that would be 36.5 days. Just some food for thought. I am definitely no tax expert, but for those who plan to discuss this with a tax advisor next year, you could bring some of this info to them.

Oh, and unless you are a business, you can't have a loss of income from renting DVC. Anyway, that's enough of my foray into tax accounting. </font>

 

[dcfromva]

"Taxpayer Compliance Measurement Program Audit
This rather lengthy and detailed audit asks you to document and prove every single item in your return. The IRS performs this audit in order to:
Determine compliance levels
Estimate tax gaps (the difference between the amount of income tax owed and the amount paid)
Develop formulas to decide what kinds of returns should be audited
Allocate audit resources
The IRS and Congress use the data from these audits for research and statistical purposes. These audits are arbitrary, and anyone can face them regardless of how carefully they prepare their tax returns."

Source: Allbusiness.com

The above type of audits were used to get a complicated math formula called the UI DIF which the IRS scores all taxpayers returns. (ie flagging the returns). (This fellow who wrote the book I read a few years back said the basis for the formula was secret even to the IRS examiners...)

Here's an exerpt from the IRS web page. (Further on, it says "Calibration audits.
These will consist of about 2,000 examinations that will check each line of the return. But, in a major change from earlier programs, taxpayers will not be required to provide line-by-line substantiation".... so, you would have to be mighty unlucky to get one of those )

Unreported Income
Unreported income represents the largest component of the tax gap. IRS has developed a new tool for identifying returns with a high probability of unreported income. The new tool is known as Unreported Income Discriminant Index Formula (UI DIF).

All individual returns have traditionally been assigned a DIF score rating the probability of inaccurate information on the return. The new UI DIF score rates the probability of income being omitted from the return. The IRS has customarily used indirect examination methods to identify unreported income but until now has had no systemic method for selecting the returns at highest risk for unreported income.

UI DIF gives the IRS the ability to systemically identify returns at high risk for unreported income and beginning this fall all returns will receive a UI DIF score in addition to the traditional DIF score.

IRS web page
One other juicy tidbit I read in the book (I think the title was something like "surviving an audit") was back when the author was an IRS examiner, they didn't bother with an audit unless they felt they could get at least $300.00 more in taxes...They had to make it worthwhile.. (This was several years ago, I don't know if they've changed this any)

-DC :ears: