Just sold my contracts - can you explain the 1099?

[momoflizandains]

I just sold two small BCV contracts that were financed with Disney. We received a check for the amount remaining after payoff but also a 1099 stating that the gross proceeds were the entire amount of the sale. Am I going to have to pay taxes on the entire amount? Any info appreciated.

 

[rlovew]

I would think so- after all you were paid that amount- you just used it to pay off the debt you owed so you didn't see it. If you sell a house (and it is not replaced per law) you pay taxes on the entire amount- not just on the portion above the mortage amount.

 

[punkin]

I would think so- after all you were paid that amount- you just used it to pay off the debt you owed so you didn't see it. If you sell a house (and it is not replaced per law) you pay taxes on the entire amount- not just on the portion above the mortage amount.

I don't think that's right...is it?

 

[adminjedi]

I would think so- after all you were paid that amount- you just used it to pay off the debt you owed so you didn't see it. If you sell a house (and it is not replaced per law) you pay taxes on the entire amount- not just on the portion above the mortage amount.

Not exactly correct.

When homeowners sell their main home, they can exclude up to $500,000 in capital gains from income tax. The Housing Assistance Tax Act of 2008 changes the rules. The amount of profits from the sale of a house that can be excluded is now based on the percentage of time when the house was used as a primary residence.
Homeowners who sell their primary residence can exclude up to $250,000 (or up to $500,000 for married couples filing jointly) in capital gains from their taxes. The amount of gain that will qualify for the exclusion is limited based on the amount of time that the house is used as a primary residence. If the house is used other than as a primary residence, capital gains must be allocated between qualifying and non-qualifying use. Any non-qualifying use can potentially reduce the amount of capital gain that can be excluded. The allocation rules take effect beginning January 1, 2009.

I am not a cpa, but my guess is that you can show a cost and a resale profit or loss. A gain is probably taxable, but I would not think the entire sale amount is taxable.

 

[Sandisw]

When I sold last year, I also got a 1099 for the sale. However, the price I sold for was less than I paid for it and therefore, I didn't owe any taxes.

Of course, I had a professional accountant do the taxes to ensure things were done correctly.

 

[Mgeris]

I am a CPA. You will need to report the entire gross amount on your 2010 income tax return otherwise the IRS will send you a deficiency notice with the tax computed. You should report it on Schedule D of your 1040 (Short-term and Long-term gains and losses) The 1099-S amount goes as the "Proceeds." You should determine your basis in the property, basically what you paid for it plus closing costs and fees. That is the "basis". If your proceeds are higher than your basis you owe tax on the gain. If your basis is higher than your proceeds you report a 0 profit/loss(personal losses like this are not deductible because it is personal not business) The proceeds and basis should be reported in the section that applies to the time frame you held the property. Less than a year is short-term and more than a year is long-term.

Mark Geris CPA, CMA
www.theparttimeCFO.com

 

[Mgeris]

Not exactly correct.

When homeowners sell their main home, they can exclude up to $500,000 in capital gains from income tax. The Housing Assistance Tax Act of 2008 changes the rules. The amount of profits from the sale of a house that can be excluded is now based on the percentage of time when the house was used as a primary residence.
Homeowners who sell their primary residence can exclude up to $250,000 (or up to $500,000 for married couples filing jointly) in capital gains from their taxes. The amount of gain that will qualify for the exclusion is limited based on the amount of time that the house is used as a primary residence. If the house is used other than as a primary residence, capital gains must be allocated between qualifying and non-qualifying use. Any non-qualifying use can potentially reduce the amount of capital gain that can be excluded. The allocation rules take effect beginning January 1, 2009.


I am not a cpa, but my guess is that you can show a cost and a resale profit or loss. A gain is probably taxable, but I would not think the entire sale amount is taxable.

adminjedi, nice job explaining the Home Sale exception and the recent changes. Two things, 1) it doesn't apply in this situation because a DVC interest would never be a primary residence and 2) on the new changes, some of the non-qualified use can still be exempted from the gain calculation if the non-qualified use occurs after the qualified use and some timing items are met. In layman's terms, there is still a way to exclude gain in a primary residence turned into a rental property post-Housing assistance tax act of 2008. Consult your tax advisor

 

[VLee]

The 1099-S amount goes as the "Proceeds." You should determine your basis in the property, basically what you paid for it plus closing costs and fees. That is the "basis".
Mark Geris CPA, CMA
www.theparttimeCFO.com

I have a question concerning this. On sales directly from Disney, what kind of fees would be included in this basis. I know resale would have a closing cost to be added. Also, can you include the yearly maintenance fees that have been paid on contracts, adding this to the basis?? Thanks.

 

[Mgeris]

I am not familiar with the closing process for purchases through Disney (we did resale both times) but if Disney has no closing fees then the basis will likely be the cost paid for all the points only. The basis is generally made up of all cost associated with the acquisition of a property.

Annual maintenance fees would NOT be added to the basis of the property. The portion of the maintenance fees for property taxes can be deducted as an itemized deduction for property taxes paid. The rest of the maintenance fees is non-deductible.

 

[srberubenh]

I am not familiar with the closing process for purchases through Disney (we did resale both times) but if Disney has no closing fees then the basis will likely be the cost paid for all the points only. The basis is generally made up of all cost associated with the acquisition of a property.

Annual maintenance fees would NOT be added to the basis of the property. The portion of the maintenance fees for property taxes can be deducted as an itemized deduction for property taxes paid. The rest of the maintenance fees is non-deductible.

I'm glad another CPA was on here to answer this. I almost had a heart attack when I saw that someone thought the entire amount was taxable. Any commissions on the sale should also decrease the gain, if any, on the sale.

 

[YourEveryDayAdam]

To put what the CPA said in lay terms:

You only have to pay taxes on the portion of your sale that is "profit". If you paid more for your DVC than you sold it for, then you won't owe taxes. If sold your DVC for more than you paid for it, then you will owe taxes on only the amount that exceeds your purchase price.

To calculate it:

Look on your purchase contract. Find the purchase price, it should also list out all the fees and closing costs you paid on the purchase of the contract. You can not include any interest from a loan you might have taken out to purchase your DVC, but you can add any loan origination fees, closing costs, etc. Take all those costs and add them up. This is what your DVC has cost you.

Then take the amount on your 1099, subtract off any sales commissions, fees, etc. that you paid in direct relation to the sale of your DVC. This is your net sale price.

If your total DVC purchase cost is higher than your net sale price then you won't owe any taxes. Just make sure you fill out the proper tax forms so you can show this to the IRS.

If your total DVC purchase cost is lower than your net sale price, then subtract your DVC purchase cost from your net sale price and this is your taxable portion of the sale. You will have to pay income tax on this amount.

Disclaimer: I am not a CPA and this is not tax advice. Consultation with a tax professional is advised.

 

[adminjedi]

adminjedi, nice job explaining the Home Sale exception and the recent changes. Two things, 1) it doesn't apply in this situation because a DVC interest would never be a primary residence and 2) on the new changes, some of the non-qualified use can still be exempted from the gain calculation if the non-qualified use occurs after the qualified use and some timing items are met. In layman's terms, there is still a way to exclude gain in a primary residence turned into a rental property post-Housing assistance tax act of 2008. Consult your tax advisor

I knew timeshare does not qualify as a primary residence. I was responding to the OP stating that they would "have to pay taxes on the entire sale amount, just like selling their home". That is why I also stated "I am not a cpa, but my guess is that you can show a cost and a resale profit or loss. A gain is probably taxable, but I would not think the entire sale amount is taxable."

Glad the CPA confirmed my guess!

 

[Dean]

I knew timeshare does not qualify as a primary residence. I was responding to the OP stating that they would "have to pay taxes on the entire sale amount, just like selling their home". That is why I also stated "I am not a cpa, but my guess is that you can show a cost and a resale profit or loss. A gain is probably taxable, but I would not think the entire sale amount is taxable."

Glad the CPA confirmed my guess!

I believe you can show a profit or no profit If there's a "loss", I wouldn't think you could deduct any loss unless you ran it as truly a business, even then I'd think you'd be on shaky ground and asking for an audit. Just like you can't deduct partial use (like a week) for charity donations.

 

[tmagg]

I also thought you could take expenses to look over the property before you purchased if it is considered an investment, as well as any of the DIS corp meetings for members that you may have attended. I'm not an accountant and this maybe more for rental property in exotic places where you have to go once or twice a year to make sure it is being maintained properly...

 

[Dean]

I also thought you could take expenses to look over the property before you purchased if it is considered an investment, as well as any of the DIS corp meetings for members that you may have attended. I'm not an accountant and this maybe more for rental property in exotic places where you have to go once or twice a year to make sure it is being maintained properly...

No just like you can't deduct trips to "check on" the property like you potentially could with a condo.