Tax implications on income from renting

[Boardwalker]

Perhaps I am being niave here, but....I am just wondering about the tax implications of the income you receive from renting out your points.
It is taxable, right?

How do you determine how much is profit? What do you use as the figure for what your cost is? Annual fees? Do you amortize the asset?

Don't worry, I do not work for the IRS, I was just curious about how it works.

 

[dianeschlicht]

Well, the fact that you aren't getting any answers leads me to believe that no one on this board who is renting out points is actually claiming it on their taxes! Shame on them! Yes, you DO need to claim income on your taxes, but I have no idea how it all works, since I don't rent out points. I'm sure someone will know that answer, and I'm betting it will be Dean.

 

[OKW Lover]

Yes, rental income is taxible. How much was profit? Well, if you spread your acquisition cost over the life of the points, that would tell you what the cost per point is. Add to that the current year's maintenance fee per point and you'll know your total cost per point for that year. Subtract that from your rental proceeds and pay tax on the difference.

 

[DBBN]

We rent some of our points and yes, we report every penny generated from our rentals on our income tax filings, both Federal and State. We offset the proceeds by the cost of purchasing the points, maintenance and other expenses associated with the rentals.

 

[barlitz]

You would more than likely have negative income on your timeshare, interest, taxes,maintenance fees vs potential yearly income would probably wash for tax purposes.I would talk to an accountant if you do use it as some type of investmant property, with rental income you possible could get hit with a capital gain tax on a sale if you were to sell down the road and you made a profit.

 

[ssonley]

capital gain tax would apply to the sale regardless of if you were renting the property or not (at least in Canada)...
any capital loss on sale would be denied as it would be considered personal use property

hehe - if CRA (Canadian equivalent of IRS) wanted to get really picky every time you switch between renting points and using points personally could be considered a deemed disposition on change in use from personal to business and the capital gain calculation performed at that time using fair market value.

Just a thought - BTW the above is obviously not to be considered tax advice in ANY manner whatsoever (stupid disclaimer rules)...

 

[ssonley]

In regards to using the upfront payment and dividing over the term of the contract (which I can not find any definative guidance on one way or the other) - claiming a deduction from rental income would result in an adjustment to the cost base of your DVC membership.

For example - Buy @ $10,000 for 100 points (50 year term)
Rent 100 points for $1,000 in Yr 1
Rent 100 points for $1,000 in Yr 2
Sell the 100 points in Yr 3 for $10,000

Rental income = $400 (1000 - 400 mf - 200 amort of upfront) in Yr 1 & 2
Capital gain in Yr 3 = $400 (10000 proceeds - 10000 cost - 2 * 200 applied to income in Yr 1 & 2)

 

[Boardwalker]

Wow, you poor Canadians!
You can't win the night in the castle and your tax code is even more difficult than ours. At least you have better beer.
And to think I learned all this on the DIS boards!
Thanks for the information, everyone.

 

[barlitz]

Also income under a certain amount doesn't require to be reported, ie scratch ticket winnings. $599 or less in Ma, If you hit a jackpot on a slot machine at foxwoods anything under $1199 they pay without tax withholdings or asking for any tax info.

ssonly it depends on your scenerio, we own a home on Cape Cod which is considered our second home we do not rent it, if we were to sell it now we would have a capital gain, If we sell our primary home we would not have a capital gain, if we sold our primary then moved into our Cape house lived there for 2 years as our primary residence then we would not be required to pay a capital gain on that property..... I don't know what the residency laws in Fla are but technically if you had enough points to claim as a primary residence you may be able to avoid the capital gain. Did any of this make sense?

 

[barlitz]

please apply the same disclaimer as ssonly as I am just a simple man who may or may not know what he is talking about

 

[Doctor P]

Once again, I would suggest your own tax adviser and one who is well versed in timeshares (particularly RTU and points based Timeshares). Some of the rules don't appear to go through as smoothly as some might have you believe. I'll just say that there is little question you have income. The degree to which you can use any expense and the proportion of those expenses that can be used is a more technical question.

 

[CarolA]

Tax advice from the DIS is worth what you pay for it..... Keep that in mind!
(Here's a hint, I dont' think you want to claim any type of "depreication expense" on this)

Hint 2. Those jackpot earnings ARE taxable. Just because the person paying you did NOT withhold does not mean the IRS feels the same way!

 

[barlitz]

You are partially correct! My point, there is a # where you are required to claim and like I said 600 in Ma and 1200 at Foxwoods, If I was to hit a jackpot for $1000 but it cost me $1001 to hit it what happens?

 

[Krazy]

Keep in mind if you were to declare the income from a rental, you could also write off the cost of ownership as an expense, as well as the cost of your travel to Orlando to inspect your rental unit a few times per year. I am certain there are DVC owners who use DVC as a way to right off the cost of vacations.

 

[kdzgon]

Well, the fact that you aren't getting any answers leads me to believe that no one on this board who is renting out points is actually claiming it on their taxes! Shame on them! Yes, you DO need to claim income on your taxes, but I have no idea how it all works, since I don't rent out points. I'm sure someone will know that answer, and I'm betting it will be Dean.

Just because one does not offer tax advice does not mean that person is not claiming his/her rental income. One has nothing to do with the other, IMO. The tax rules are quite complex, especially when it comes to timeshares.

 

[Boardwalker]

The tax rules are quite complex, especially when it comes to timeshares.

You can say that again! I guess to sum up the thread, this is one for the professionals, as everyone's tax situation is different. Thanks for the insight everyone.

 

[akk]

There is a good discussion of this on Redweek.com. It discusses the tax implications of renting out a timeshare by an accountant who has carefully studied this.

 

[Dean]

There is a good discussion of this on Redweek.com. It discusses the tax implications of renting out a timeshare by an accountant who has carefully studied this.

I agree it can be a complicated situation and the series of articles on redweeks about this are good. However, if you read the articles on this subject on timeshare rentals, there is one flaw for the casual renter. The article's are written more for one who rents regularly and states that interest and depreciation are deductible. Interest may be if you could deduct it anyway as a "second home" but not likely otherwise and I don't believe depreciation would be deductible if you use it routinely and personally. And I'd submit that it's VERY DIFFICULT to meet the rules with timeshares not to report less than 15 days of rental as income.

If one actually did this as a true business there are other things that could be deducted but I think that's the only way you could use depreciation or count trips and even then you couldn't go to Orlando for a week to check on it and count of the trip as a deduction when it really was a vacation. But if you deducted depreciation then later sold, you'd have to use a lower base and end up with a higher sale profit. There are other smaller items one could possibly deduct. The article hinted at listing fees but I'd include paypal fees and the like as well plus long distance phone calls, mailings, copying and the like.

I'd also add that just because the paying entity isn't required to report it to the IRS doesn't mean the tax payer isn't required to count it as income, they are, though I doubt it happens most of the time.

 

[Krazy]

you couldn't go to Orlando for a week to check on it and count of the trip as a deduction when it really was a vacation.

Let's assume we had a person who owned 2000 dvc pts, and rented the majority of them out each year.(and declares the income) I am very much under the impression that 1-2 times a year a husband and wife could fly to Orlando to "check" on the timeshare, and deduct the cost of air fare, the DDP, air port parking, and other expenses. They may not be able to deduct the full cost of the DDP or the parking if they stayed more than a few days, but the air fare would be deductable. Now if they go to the Orlando area to look for other Time shares to invest in, and that takes a week or so to research, I am cerratin they could deduct all the cost of staying in Orlando for a week.

 

[bicker]

Remember, DVC members are not allowed to use their membership as a business.