Is renting out points worth it on your taxes?

[Genie+]

I am not a lawyer; merely a lowly citizen who has read some of the IRS’ tax guidance documents. I am pretty positive point swaps are a taxable event, even if you don’t receive tax documents from the swapper.

None of us love paying taxes, especially when you feel the money is not managed to your liking, but how you feel about it doesn’t change the law.

Plausible deniability lol

 

[Genie+]

My statement above is absolutely NOT tax advice!

 

[RivShore]

The swap is like asking your employer to not give you a paycheck each month. Instead you’re going to provide them a grocery list and they can get you groceries instead for the same amount. You’re swapping your time and labor for groceries, not money. In that case you don’t have to pay taxes! Right?… Right?!!

So bartering, good try, but taxable...you know who always wins!!

 

[ClaraOswald]

CPA here. @AstroBlasters is totally correct. Everyone's situation has a lot of variables and there are many thresholds that can be affected beyond just marginal tax rate.

I've never rented out points before. But if I do, it would be through one of the websites like Jack's or whatever it's called. Do I just tell my CPA how much we rented our points for and how much we pay in dues? Or will I be given actual forms or something to give to my CPA to fill out?

I'm one of those people who just gets all the tax forms and hands them over to my tax guy to deal with for me. Ha!

 

[mkatsy]

Ask the broker telling you it’s not taxable if they’ve obtained an opinion of counsel on whether the point swap is taxable and you might see just how questionable it is.

Now, whether a transaction is taxable and whether the IRS knows about it or will ever find out about it if you don’t report the income are two very different questions. There are many, many transactions people engage in all the time that are taxable but for which there is no information reporting obligation (or the obligation is simply ignored) and so the income escapes the tax system. That would give some people comfort ignoring any tax consequences associated with a points swap or even with occasional rental income that didn’t generate a 1099. Others are rule followers through and through. YMMV.

Signed, someone who may or may not be a practicing tax lawyer .

I will never forget Freshman year when my child announced at Thanksgiving that the money in a strippers a** is taxable income. signed, the mother of an accountant.

 

[airjay75]

I will never forget Freshman year when my child announced at Thanksgiving that the money in a strippers a** is taxable income. signed, the mother of an accountant.

Love it. LOL.

 

[VGCgroupie]

I used to have a little side gig that was 1099 based and it was always just enough income to mess us up on our taxes and we always owed while I was doing it so I dropped it so we wouldn't always be in that situation. It just wasn't worth the extra hassle. DH would be ticked if I created that situation again.

Ive read through most of the posts. Let me give my feeling on it as someone who can relate on a couple different levels.

1st point swap, I did a swap with the board sponsor. At first I loved it, but now I am not so in love for a couple reasons..
1. I collect and use Disney gift cards wherever I can. If you have a balance that you would normally pay with a GC you cannot. I did know this going in. My next best option is Amex, I prefer to use Amex for my travel charges and they do not take Amex, gut punch on that one for me.
2. They are not like a normal TA, the assistance given for your trip is basically nothing so you are not getting that TA level of service when using them but you still have them as a middle man and its a bit frustrating.

My personal feelings in regards to renting and taxes. If you use Turbo Tax and a 1099 was a bit confusing for you you may want to hire a tax professional to do your taxes. Turbo Tax leaves a lot to be desired when it comes to anything even remotely complex. I say this as a non tax professional that has used Turbo Tax and HrBlock Tax software for many years and that owns several sole proprietor businesses and bought and sold many properties. There was a few years where I had to go to a professional due to the complexity and I didnt want to run a higher risk of being audited. Tax Pro's are not cheap. So if you are not comfortable doing this on your own also take that Tax prep fee into consideration when doing your calculations.

Lastly, many people have different situations and some are taxed differently than others. So nobody can say yes it's worth it. If you dont HAVE to rent points to pay of the trip and have the money otherwise, I would consider just taking the trip paying cash and bank your points for future use.

 

[AnnaKristoff2013]

d some reservation elsewhere, that event might arguably be treated as a non-income gift.

No, that is definitely not a gift.

 

[Anal Annie]

Ive read through most of the posts. Let me give my feeling on it as someone who can relate on a couple different levels.

1st point swap, I did a swap with the board sponsor. At first I loved it, but now I am not so in love for a couple reasons..
1. I collect and use Disney gift cards wherever I can. If you have a balance that you would normally pay with a GC you cannot. I did know this going in. My next best option is Amex, I prefer to use Amex for my travel charges and they do not take Amex, gut punch on that one for me.
2. They are not like a normal TA, the assistance given for your trip is basically nothing so you are not getting that TA level of service when using them but you still have them as a middle man and its a bit frustrating.

My personal feelings in regards to renting and taxes. If you use Turbo Tax and a 1099 was a bit confusing for you you may want to hire a tax professional to do your taxes. Turbo Tax leaves a lot to be desired when it comes to anything even remotely complex. I say this as a non tax professional that has used Turbo Tax and HrBlock Tax software for many years and that owns several sole proprietor businesses and bought and sold many properties. There was a few years where I had to go to a professional due to the complexity and I didnt want to run a higher risk of being audited. Tax Pro's are not cheap. So if you are not comfortable doing this on your own also take that Tax prep fee into consideration when doing your calculations.

Lastly, many people have different situations and some are taxed differently than others. So nobody can say yes it's worth it. If you dont HAVE to rent points to pay of the trip and have the money otherwise, I would consider just taking the trip paying cash and bank your points for future use.

Thanks. I think I am actually more comfortable doing a swap than flat out renting my points. I started looking into their swap options and may actually start considering swapping for an RCI Asian cruise that starts and / or ends in one of our target cities. A one-way option may just do the trick. We obviously don't want to fly all that way to spend 4 days in a theme park then turn around and fly home. We also want to explore. A cruise would eliminate a good amount of airfare tho between cities if we can manage to kill two cities at once by bookending a cruise around them.

And I do realize they are not TA's and only facilitate the swap as their only transaction. (I know a couple of TA's should I decide I need one.) AMEX is not a concern for me - we use a couple of other reward cards. We are definitely relying on using some funds from our DVC points to help pay for this trip. I also buy gift cards to use for our trips but I also stash some cash. If I don't have enough in gift cards there's always the stash. And the gift cards don't expire so if I don't use all of them there's always next time. I am not bothered that they don't take gift cards. That seems fair.

Since you've actually done a swap with them were there any problems other than they didn't take your AMEX and they weren't a full service TA? Any other buyer bewares?

 

[VGCgroupie]

Thanks. I think I am actually more comfortable doing a swap than flat out renting my points. I started looking into their swap options and may actually start considering swapping for an RCI Asian cruise that starts and / or ends in one of our target cities. A one-way option may just do the trick. We obviously don't want to fly all that way to spend 4 days in a theme park then turn around and fly home. We also want to explore. A cruise would eliminate a good amount of airfare tho between cities if we can manage to kill two cities at once by bookending a cruise around them.

And I do realize they are not TA's and only facilitate the swap as their only transaction. (I know a couple of TA's should I decide I need one.) AMEX is not a concern for me - we use a couple of other reward cards. We are definitely relying on using some funds from our DVC points to help pay for this trip. I also buy gift cards to use for our trips but I also stash some cash. If I don't have enough in gift cards there's always the stash. And the gift cards don't expire so if I don't use all of them there's always next time. I am not bothered that they don't take gift cards. That seems fair.

Since you've actually done a swap with them were there any problems other than they didn't take your AMEX and they weren't a full service TA? Any other buyer bewares?

No that was the only things everything else I really was happy. I have never used a TA so Im not 100% on how it works but I know they are considered a full service TA but they just weren't helpful when it came to my booking and questions. But flip side if you really are more of a DIY trip planner anyway then no big deal.

 

[Anal Annie]

No that was the only things everything else I really was happy. I have never used a TA so Im not 100% on how it works but I know they are considered a full service TA but they just weren't helpful when it came to my booking and questions. But flip side if you really are more of a DIY trip planner anyway then no big deal.

Yeah, I'm a planner. When we did a DCL Med cruise I planned all of our port excursions myself. We rode the trains and hired a car service for Rome etc. I didn't want to be a part of a big tour group. I am glad to hear that you were happy otherwise!! Thx for chiming in!

 

[Brian Noble]

If you dont HAVE to rent points to pay of the trip and have the money otherwise, I would consider just taking the trip paying cash and bank your points for future use.

IMO, this is great advice. The very best use of DVC points is to secure DVC lodging.

 

[muppets3d]

You are correct. The market value of whatever is received on the exchange would be the revenue in this instance, regardless of whether a 1099 is received. As others have pointed out, would the IRS find out? Most likely not, but that doesn't make it "tax free."

What about when we exchange our vacation points for reservation points through DVC to book a cruise with DVC's native exchange program?

 

[Sandisw]

Ive read through most of the posts. Let me give my feeling on it as someone who can relate on a couple different levels.

1st point swap, I did a swap with the board sponsor. At first I loved it, but now I am not so in love for a couple reasons..
1. I collect and use Disney gift cards wherever I can. If you have a balance that you would normally pay with a GC you cannot. I did know this going in. My next best option is Amex, I prefer to use Amex for my travel charges and they do not take Amex, gut punch on that one for me.
2. They are not like a normal TA, the assistance given for your trip is basically nothing so you are not getting that TA level of service when using them but you still have them as a middle man and its a bit frustrating.

My personal feelings in regards to renting and taxes. If you use Turbo Tax and a 1099 was a bit confusing for you you may want to hire a tax professional to do your taxes. Turbo Tax leaves a lot to be desired when it comes to anything even remotely complex. I say this as a non tax professional that has used Turbo Tax and HrBlock Tax software for many years and that owns several sole proprietor businesses and bought and sold many properties. There was a few years where I had to go to a professional due to the complexity and I didnt want to run a higher risk of being audited. Tax Pro's are not cheap. So if you are not comfortable doing this on your own also take that Tax prep fee into consideration when doing your calculations.

Lastly, many people have different situations and some are taxed differently than others. So nobody can say yes it's worth it. If you dont HAVE to rent points to pay of the trip and have the money otherwise, I would consider just taking the trip paying cash and bank your points for future use.

Thanks for sharing that infomation about the cruise swaps. While it wasn't on the top of my list to do anyway, I definitely wouldn't now given the lack of flexibility to use gift cards or certain CC to pay the balance, which are not impacted when using your typical travel agent.

 

[airjay75]

What about when we exchange our vacation points for reservation points through DVC to book a cruise with DVC's native exchange program?

I think there are probably a couple ways to look at that such that I don't think it would be taxable - or, if it is, there isn't much, if any income.

One, my understanding is that you are simply exchanging your vacation points for reservation points. The points in and of themselves have no value. It is sort of akin to converting credit card points to airline miles through Chase or AmEx. Those points, in and of themselves, don't entitle you to anything specific, but can redeemed for whatever Disney has decided to let you redeem them for.

Two, I think you could say it's part of the terms of your membership you purchased up front and so you've effectively paid up front for this contractual right (granted, it is dependent on whether Disney offers the exchange and they reserve the right not to).

Three, even if there is a taxable exchange and we assign value to the points, you probably get into question about valuation. What is the value of a vacation point and what is the value of reservation point? Probably a pretty good argument that the value of a reservation point is less than the value of a vacation point, in which case, you're actually incurring a taxable loss.

At any rate, much different than the broker swap programs where you agree to rent out enough points to pay for the cost of your cruise and rather than having the rental dollars routed to you to then make payment for the cruise, you simply have the money routed directly to the broker who makes payment on your behalf. It's really just a pure play to avoid the 1099 reporting obligation.

 

[Brian Noble]

It's really just a pure play to avoid the 1099 reporting obligation.

Yes, this.

There are a number of different ways in which some of the larger brokers are less scrupulous than I would wish. This is but one of them.

 

[RivShore]

The more I think about this...I might be moving to the other side of this debate...

If DVC has determined that an exchange in points is a non-taxable event (to the satisfaction of their lawyers and probably the IRS), why would a similar looking exchange thru DVCRS be treated any differently?

 

[mkatsy]

I think there are probably a couple ways to look at that such that I don't think it would be taxable - or, if it is, there isn't much, if any income.

One, my understanding is that you are simply exchanging your vacation points for reservation points. The points in and of themselves have no value. It is sort of akin to converting credit card points to airline miles through Chase or AmEx. Those points, in and of themselves, don't entitle you to anything specific, but can redeemed for whatever Disney has decided to let you redeem them for.

Two, I think you could say it's part of the terms of your membership you purchased up front and so you've effectively paid up front for this contractual right (granted, it is dependent on whether Disney offers the exchange and they reserve the right not to).

Three, even if there is a taxable exchange and we assign value to the points, you probably get into question about valuation. What is the value of a vacation point and what is the value of reservation point? Probably a pretty good argument that the value of a reservation point is less than the value of a vacation point, in which case, you're actually incurring a taxable loss.

At any rate, much different than the broker swap programs where you agree to rent out enough points to pay for the cost of your cruise and rather than having the rental dollars routed to you to then make payment for the cruise, you simply have the money routed directly to the broker who makes payment on your behalf. It's really just a pure play to avoid the 1099 reporting obligation.

The way I understand the Disney swap is this: I purchased an apple from you, but I would prefer an orange. No problem, I’ll take your apple back and you can take the Orange. The money never leaves the Walt Disney Company. If you were to exchange a pair of pants at Kohls the exchange is not a taxable event. However, if I take your Kohls apple from you, sell it to a stranger, and take the money, pay myself a commission, and then go to Macys to buy your orange that is NOT the same thing.

 

[Genie+]

The more I think about this...I might be moving to the other side of this debate...

If DVC has determined that an exchange in points is a non-taxable event (to the satisfaction of their lawyers and probably the IRS), why would a similar looking exchange thru DVCRS be treated any differently?

I would guess because it is still staying within one system. At no point in those transactions is money exchanging hands (except for administration fee).

eta- vs real dollars moving around:

The brokers are just a middle man, which basically leaves no way for them to avoid money being exchanged. Either they’re buying or selling points on behalf of their customers, or needing to buy whatever they set up to exchange for such points.

 

[Brian Noble]

I would not want to be the one making that argument in a dispute with the IRS. Would such a dispute ever materialize? Almost certainly not. But, that's a different question.