Rental Value vs. Rising Maintenance Fees

[wdrl]

may we please have the irs tax code to which you refer here. i'm sure all of us would like to know exactly how the irs expects calculations of profit on timeshare rentals. why didn't you post a link or quote from this code with its unambiguous rules.

i do my own taxes. i can certainly figure out the code if you simply point me to it.

Florida's Transient Accommodation Tax is a sales tax, not an income tax. The calculation of the tax is based on rental income received, not on the profit derived from a business operation.

It is a Florida tax administered by the Florida Department of Revenue, not by the Internal Revenue Service. You can search the law library at the Department of Revenue's website, www.myflorida.com/dor, for Rules 12A-1.061, Florida Administrative Code, Rental of Transient Living Accommodations.

By the way, in addition to the state Transient Accommodations Tax, some Florida counties may have other sales or use taxes that apply when renting timeshares, including discretionary sales surtaxes, local option taxes, tourist development taxes, convention development taxes, or tourist impact taxes on rentals of transient accommodations.

 

[joeyrose]

Sure, I'm not a tax accountant, but I am an accountant. I'd be happy to research the law for you. My consulting rate is $200 an hour. I get paid in advance with a three hour minimum.

i do not need your research, i have done my own, extensively. the irs code is ambiguous regarding expenses that can be deducted against rental income. if you have any evidence to the contrary, post it. i'm sure we all want to be fully aware of the tax implications of renting dvc points.

 

[joeyrose]

Florida's Transient Accommodation Tax is a sales tax, not an income tax. The calculation of the tax is based on rental income received, not on the profit derived from a business operation.

It is a Florida tax administered by the Florida Department of Revenue, not by the Internal Revenue Service. You can search the law library at the Department of Revenue's website, www.myflorida.com/dor, for Rules 12A-1.061, Florida Administrative Code, Rental of Transient Living Accommodations.

By the way, in addition to the state Transient Accommodations Tax, some Florida counties may have other sales or use taxes that apply when renting timeshares, including discretionary sales surtaxes, local option taxes, tourist development taxes, convention development taxes, or tourist impact taxes on rentals of transient accommodations.

i understand the difference between sales tax and income tax; i think most folks do. how owners handle their taxes is between them and the tax man.

 

[crisi]

i do not need your research, i have done my own, extensively. the irs code is ambiguous regarding expenses that can be deducted against rental income. if you have any evidence to the contrary, post it. i'm sure we all want to be fully aware of the tax implications of renting dvc points.

Cool, then you are comfortable and are just asking me to run around and do research for you because you want to waste my time. We understand each other. I would recommend that other people talk to their CPA since the rules here are rather conditional and there are several rulings on the matter. And tax advice on the internet is worth what you pay for it.

 

[CarolMN]

Some may find the following info from TUG helpful / interesting:

Income Taxes and Timeshares

 

[joeyrose]

Cool, then you are comfortable and are just asking me to run around and do research for you because you want to waste my time. We understand each other. I would recommend that other people talk to their CPA since the rules here are rather conditional and there are several rulings on the matter. And tax advice on the internet is worth what you pay for it.

you replied to my post that this irs is ambiguous wrt how to calculate profit with "no, there are specific rules." then when asked to point out these rules, you can not and get all huffy.

i would agree that some internet advice is worthless (particularly "consult a tax professional"), but it certainly can be a starting point. i have spent considerable time studying the code on this matter. i find no unambiguous rules about how to calculate profit on timeshare rentals.

 

[joeyrose]

Some may find the following info from TUG helpful / interesting:

Income Taxes and Timeshares

this is an extremely helpful link...wowza, thanks. done by a cpa, but no specific references to code. deals with selling tax implications too...a keeper!

rental income: details expenses that can be deducted and shows a reasonable calculation of depreciation (but seems to ignore maintenance fees that also include taxes), makes it clear that small-time renters (e.g., once a year) are not liable, and...makes it clear that most tax professionals may not be completely knowledgeable in this area.

i'm copying an pasting this link to an email to myself.

addendum: yes, this cpa does mention maintenance fees and clearly states they are NOT deductible. i bet 99.9% of folks who report take this as a deduction, certainly includes taxes that are deductible. here's his interpretation of the code on this, but i disagree. he compares these expenses to owning a home and as such not deductible, BUT i feel certain that they would be deductible expenses if one were RENTING their home. if this man were my tax professional, i would take this part of his advice with a grain of salt and study the code!

Your annual maintenance fee is not deductible. This annual fee for utilities, pool care, lawn care, other maintenance, management, and other expenses can be compared to similar expenditures that you might incur on your primary residence, which are also not deductible.

 

[wdrl]

Some may find the following info from TUG helpful / interesting:

Income Taxes and Timeshares

Thanks for the link about timeshares and income taxes. However, the question I raised is about the State of Florida's Transient Accommodations tax, which is a sales tax applicable to timeshares. Have you seen any discussions about the applicability of the tax to DVC rentals?

A business can report a loss for the tax year and not have to pay any income tax. A business could also have so little income that it doesn't have to pay a tax. But a sales or use tax, such as the Florida Accommodation tax, is applicable when renting to others the use of transient accommodations, which includes timeshare resorts.

 

[joeyrose]

my thinking on all this...certainly not advice, but i have pondered and studied this issue.

1) if i rent only occasionally, i do not need to report rental income at all.

2) if there is no reporting of the income to the irs on a 1099 or other (paypal and other such middle men have to report gross income if over $20k annually, many speculate that eventually all income), reporting is at my discretion (this is not cheating if i would owe no taxes on the income and calculating profit is is ambiguous, e.g., can maintenance fees be deducted, can i deduct home-office expense?).

3) if i choose to or have to report, i make certain that i include all reasonable deductions. if i made rationale decisions, i feel certain that they will pass muster with the irs in the very unlikely even that i am audited. and, it's not like they'll take my firstborn if the auditors don't agree...we're talking about a relatively small sum of tax money at the individual level

4) if i report on fed, i report by default on state, and i also have to pay "self-employment" tax (about 10% on profit) on my irs return.

5) if florida has an interest in out-of-state/country folks in terms of sales tax on individuals' timeshare rentals, i expect its representatives will figure out how to collect this. i don't think the money involved by individuals' renting is sufficient to merit extensive effort. also, one might argue that sales tax is not due from non-florida residents. certainly, when i buy other things from individuals (e.g., on ebay), even those sellers that charge sales tax do so only for folks who live in their states, i.e., there certainly seems to be a legal issue currently about charging sales tax to non-residents.

 

[wdrl]

Question for DVC Members who rent their points to others: How many of you collect and pay the 6% Transient Accommodations Tax as required by the State of Florida on rental charges or room rates?

5) if florida has an interest in out-of-state/country folks in terms of sales tax on individuals' timeshare rentals, i expect its representatives will figure out how to collect this. i don't think the money involved by individuals' renting is sufficient to merit extensive effort. also, one might argue that sales tax is not due from non-florida residents. certainly, when i buy other things from individuals (e.g., on ebay), even those sellers that charge sales tax do so only for folks who live in their states, i.e., there certainly seems to be a legal issue currently about charging sales tax to non-residents.

Well, at least I'm getting an answer to my original question.

 

[CarolMN]

Thanks for the link about timeshares and income taxes. However, the question I raised is about the State of Florida's Transient Accommodations tax, which is a sales tax applicable to timeshares. Have you seen any discussions about the applicability of the tax to DVC rentals?....(snip).........

Yes, but I do not remember where it was. Sorry. As I recall, local government officials were calculating how much revenue they were missing for this and how they might go about collecting it more effectively.

IMO, one of the reasons Disney does not encourage rentals is the fear that Florida might make the resorts start collecting the TA tax for members' rentals (or at least reporting member rentals). What a administrative nightmare that could turn out to be! If that ever happens, I hope members do not have to bear the cost of those processes. If they do, this member would be totally in favor of a surcharge on all member rentals to cover the cost of DVC collecting the TA tax.

Disney/DVC already collects the TA tax on any villas it rents.

I'm not a CPA, but IMO, those who rent for cash are obligated to pay the TA tax. In practice, I think it is just like the state sales taxes on internet purchases, though. When we buy something over the internet, we are supposed to send the sales tax in to the state ourselves. I do not think the vast majority do. Some states are now passing laws to make the internet sellers collect and remit the sales taxes. Given the condition of many state budgets these days, I can't help but wonder if Florida and the local governments might not look at the TA issue a bit harder.

P.S. I bookmarked that link some time ago - I believe it may have been Dean who first posted it here.

 

[wdrl]

Disney/DVC already collects the TA tax on any villas it rents.

I know that DVC also collects taxes when it sells -- actually, rents -- one-time use points to members. I think the tax rate is around 11% and is included in the price of $15 per point.

 

[joeyrose]

Yes, but I do not remember where it was. Sorry. As I recall, local government officials were calculating how much revenue they were missing for this and how they might go about collecting it more effectively.

IMO, one of the reasons Disney does not encourage rentals is the fear that Florida might make the resorts start collecting the TA tax for members' rentals (or at least reporting member rentals). What a administrative nightmare that could turn out to be! If that ever happens, I hope members do not have to bear the cost of those processes. If they do, this member would be totally in favor of a surcharge on all member rentals to cover the cost of DVC collecting the TA tax.

Disney/DVC already collects the TA tax on any villas it rents.

I'm not a CPA, but IMO, those who rent for cash are obligated to pay the TA tax. In practice, I think it is just like the state sales taxes on internet purchases, though. When we buy something over the internet, we are supposed to send the sales tax in to the state ourselves. I do not think the vast majority do. Some states are now passing laws to make the internet sellers collect and remit the sales taxes. Given the condition of many state budgets these days, I can't help but wonder if Florida and the local governments might not look at the TA issue a bit harder.

P.S. I bookmarked that link some time ago - I believe it may have been Dean who first posted it here.

good stuff. i pay sales tax for my home state when i buy from national companies (e.g., yankee candle) and when i buy from sellers who are in my home state...usually these are big sellers on ebay. otherwise, i pay no sales tax, one of the perks of buying online and on ebay, in particular. i'm leaving it to florida to do whatever it wants here and will pay this if i have to. but, i think it's pretty small potatoes for florida and disney may be violating our ownership "rights" to act as florida's big brother here. but, whatever....

it sounds like i'm all over the dvc rental stuff, but really i had to address all this in doing small business taxes for the first time this year. most of my rental money came in via paypal last year and was reported to the irs as i was over $20k in paypal receipts from my kool-ade stand on ebay. 2011 was the first year that paypal was required to report on a 1099.

 

[CarolMN]

.....(snip)...... but, i think it's pretty small potatoes for florida ..........

Not sure I agree. There are lots and lots of timeshares in Florida and I'm quite sure owners of non-DVC timeshares operate pretty much the same way as DVC owners as far as collecting taxes and reporting income, LOL.

 

[crisi]

you replied to my post that this irs is ambiguous wrt how to calculate profit with "no, there are specific rules." then when asked to point out these rules, you can not and get all huffy.

i would agree that some internet advice is worthless (particularly "consult a tax professional"), but it certainly can be a starting point. i have spent considerable time studying the code on this matter. i find no unambiguous rules about how to calculate profit on timeshare rentals.

I actually can't without going to a tax library. The rules are buried in the rulings that are part of that link Carol posted, I don't have access to rulings via a public Internet site in a searchable fashion, nor do I particularly care to find out. Tax code is easy to look up, tax rulings are, from what I remember from tax class, different, and there is another level, which, iirc is called IRS guidance. As someone who does accounting for a living, I wouldn't read this code and make decisions based on it with my own level of knowledge without acknowledging that I was incurring audit risk, and I do remember doing specifically a timeshare rental in tax class based off rules and guidance, and there was a RIGHT answer, not a make it up for yourself answer. Since I don't rent my points, it isn't a good use of my time to search up rulings and guidance, unless you are willing to pay me to do so. And frankly, you should use a tax professional to do so, not me. But it sounds like you are happy with your own expertise and are willing to accept the audit risk incurred. Accountants are notoriously risk adverse.

 

[joeyrose]

I actually can't without going to a tax library. The rules are buried in the rulings that are part of that link Carol posted, I don't have access to rulings via a public Internet site in a searchable fashion, nor do I particularly care to find out. Tax code is easy to look up, tax rulings are, from what I remember from tax class, different, and there is another level, which, iirc is called IRS guidance. As someone who does accounting for a living, I wouldn't read this code and make decisions based on it with my own level of knowledge without acknowledging that I was incurring audit risk, and I do remember doing specifically a timeshare rental in tax class based off rules and guidance, and there was a RIGHT answer, not a make it up for yourself answer. Since I don't rent my points, it isn't a good use of my time to search up rulings and guidance, unless you are willing to pay me to do so. And frankly, you should use a tax professional to do so, not me. But it sounds like you are happy with your own expertise and are willing to accept the audit risk incurred. Accountants are notoriously risk adverse.

i did not seek your advice or research. you spoke authoritatively about rules that existed after quoting me in my position that the irs code is ambiguous on calculating profit on timeshare rentals. all i asked you to do was provide the code. you continue to reply with excuses as why you can not.

i don't need your research and wouldn't trust it without specific links to the code. i do rent points and have taken the time to learn about this. i do my own taxes and feel confident in the extremely unlikey case of an audit. and, regardless of how others feel, i do not view an audit (i've never had one) as the end of the world. if the irs is worried about the pittance of tax they may or not have gotten from me, the coffee pot's on.

 

[Brian Noble]

BUT i feel certain that they would be deductible expenses if one were RENTING their home.

You need to scroll down lower in the article. In the renting section it states:

If you rent your timeshare, you can deduct all current expenses, including depreciation, advertising, rental commission and maintenance fees against the rental income.

 

[joeyrose]

You need to scroll down lower in the article. In the renting section it states:

well i guess i missed that when i read the rental section. didn't go back now, but it certainly makes sense that you could. by the time one figures all the expenses, there may be very little, if any, profit, on which taxes are due.

let's see: rent for $10, maintenance fees pushing $6, depreciation would vary widely, but let's say $2, paypal fees 30cents, advertising would vary widely but let's say 40cents, lost interest on initial investment (somehow the money tied up needs to be addressed), let's say 3% annually or 30cents. so crude estimate of profit per point = $1

if one rents 300 points a year, approx $300 profit. i don't think this owner needs to report this profit according to the article, but i think the brokers use 1099's, right? paypal does if one has income from all sources (e.g., ebay) over $20k.