Tax income from renting dvc points?

[abner1776]

You are allowed to deduct annual dues on the points you rent. Going farther than that is more aggressive than I would recommend but opinions vary. You can roll the dice and take your chances.

The IRS is very clear in that unless you donate your entire investment in a timeshare, one cannot deduct the value of points donated to a charity event....therefore, if the Feds will not allow me to deduct a donation of the points then how can they say that a sale of some of the points is taxable income ? If I sold my entire DVC investment, then I would have a gain to the extent of moneys received in excess of my basis in the investment...not the entire investment itself.
Since I dealt with the IRS and other tax authorities for 40 years(it was my career) it's a rhetorical question as I know how the feds would look at it(taxable) but you would have a good argument.

 

[poofyo101]

You can deduct operating expenses and taxes (provided that you're not already deducting the taxes elsewhere on your tax return). You cannot deduct the capital reserve charge; that would be added to your basis and deducted from the capital gain from any eventual sale. I also deduct depreciation of the points I rent, which seems fair because after all the value of a DVC contract does depreciate to zero at some fixed point in the future. I have never seen any guidance on how to calculate depreciation but I do it by calculating the overall cost per point CPP by dividing the total price I paid for the contract by the product of the number of points in the contract and the number of years remaining in the contract at the time of purchase. I then calculate the depreciation for the rental as CPP multiplied by the number of points I am renting out.
As an example, say you paid $25,000 for a 200 point contract that had 50 years to run. Then CPP = $25000/(200*50) = $2.50. So if I rented out 100 points, along with the operating expense and taxes I would also deduct $2.50*100 = $250 as depreciation. I have been doing it this way for quite a few years now and the IRS has never complained. Of course the obligatory disclaimer applies that nothing I have said should be construed as professional advice and you should consult your own accountant and/or tax attorney.

Anyone else do it this way or have some clarity? This would make sense to do it this way in the contracts that end prior to the standard real estate deduction of 27.5 years

 

[bookwormde]

Here is the only publication I have seen ( I am not an accountant)

https://www.irs.gov/pub/irs-pdf/p527.pdf
Like most areas of tax code it is subject to interpretation which is somewhat difficult given the nature of timeshares as it relates to the definition of a vacation home and that there is not a specific example for timeshare rental.

With that said there appears to be pretty good consensus now (not always the case) that maintenance fees are delectable against rental income.

With that said there is always a small risk that in an audit the examiner may take a different position. while again very unlikely there could be a question if you are renting points from multiple years (banked points) can you deduct maintenance fees from prior tax years

welcome to the US tax system

 

[drusba]

Hi there, Thanks for your question about tax income from renting DVC points. The answer is yes, you still do have to report the amount as income for tax purposes. However, if the rent is equivalent to 14+ nights, then there is no need to report it.

The possible exception to reporting rental income that you mention is not correct. You do not need to report rental income for your timeshare for tax purposes if you qualify for a “vacation home” exception. That exception applies if, and only if, the total rental time during the year is less than 15 days, AND you or your relatives stay in the timeshare for at least 15 days of the year. Both conditions must be met to avoid having to report the rental income for tax purposes.

 

[Nursemanit]

I use a tax attorney, not a tax preparer or accountant. As I learned the hard way with over 10k in fines and fees from an employer mistake.

1. Yes the IRS will fine you even if it was not your fault ( I was fined for a mistake that my former employer made)
2. The fines and interest were more than the amount "owed"
3. DVC is not Real Estate - Bring your DVC contract to your attorney don't just say it's a "timeshare" as the IRS only considers it a timeshare where you own a percentage of the actual dwelling (weeks-based timeshare).
4. "Points" don't depreciate - you have prepaid points, not real estate. "real property" and "real estate" are different.
5. Some of the items in our Maintenance fees are not deductible (bell services, registration, reserves, room upgrades)
6. You would have to own at least 3 weeks' worth of points at the same resort and stay at that resort for 15 days to qualify for the rental exclusion.
7. Your 1098 from WDW does not list any real estate as securing the loan ( box 7&8). WDW leaves that section on the 1098 blank - therefore interest on DVC loan is not a Federal tax deduction as the loan must be secured by real estate to qualify. Since you only own points and not any actual property this makes sense but this is a very deceptive practice by DVC leading people on to think it is deductible.

 

[CarolynFH]

DVC is not Real Estate - Bring your DVC contract to your attorney don't just say it's a "timeshare" as the IRS only considers it a timeshare where you own a percentage of the actual dwelling (weeks-based timeshare).

Our DVC deeds say we own some tiny percentage of a specific Residential Unit at BWV, and our deeds are filed in Orange County FL with other real estate records.

The deeds go on to say that our ownership of a “real estate interest” at BWV is represented by points.

Your 1098 from WDW does not list any real estate as securing the loan ( box 7&8). WDW leaves that section on the 1098 blank - therefore interest on DVC loan is not a Federal tax deduction as the loan must be secured by real estate to qualify. Since you only own points and not any actual property this makes sense but this is a very deceptive practice by DVC leading people on to think it is deductible.

I don’t know why the 1098 doesn’t show real estate securing the loan. Maybe it’s not a mortgage on the real property but is instead a retail consumer loan? But if it’s not a mortgage, then it makes sense that the interest isn’t deductible.

 

[Nursemanit]

Our DVC deeds say we own some tiny percentage of a specific Residential Unit at BWV, and our deeds are filed in Orange County FL with other real estate records.

The deeds go on to say that our ownership of a “real estate interest” at BWV is represented by points.


I don’t know why the 1098 doesn’t show real estate securing the loan. Maybe it’s not a mortgage on the real property but is instead a retail consumer loan? But if it’s not a mortgage, then it makes sense that the interest isn’t deductible.

DVc or DVD does not own the property so they can’t sell it to you. You have a proportional right to a share of their lease on that unit for a set time.

I have a BW deed as well - it says “interest in real property” subject to the ground lease between DVD and WDW ( and subject to the member agreement ) The deed grants you no ownership at all in the property.

That is why they can’t put the address / number of secured properties on the 1098.

Other “weeks based” timeshares give you 1/52 ownership of the specific unit per week and it shows on the 1098

 

[CarolynFH]

DVc or DVD does not own the property so they can’t sell it to you. You have a proportional right to a share of their lease on that unit for a set time.

I have a BW deed as well - it says “interest in real property” subject to the ground lease between DVD and WDW ( and subject to the member agreement ) The deed grants you no ownership at all in the property.

That is why they can’t put the address / number of secured properties on the 1098.

Other “weeks based” timeshares give you 1/52 ownership of the specific unit per week and it shows on the 1098

Okay - don't we own a tiny piece of the building? Does that count as real estate? We don't have any DVC loan, but we do deduct property taxes (or did, before the tax laws limited the amount we could deduct, living in a high property tax state) paid on our BWV ownership.

 

[drusba]

DVC is a leasehold condominium, a very common form of ownership for many condominiums particularly in Hawaii and NYC. With DVC, you are deeded a real property interest in a "unit," which is not one particular room like you may have with other timeshares, but instead a small group of rooms. That the unit number is not listed on the the 1098 does not mean there is no real property interest securing the mortgage. The real estate ownership interest you have expires when the underlying lease related to the property expires. You can have a mortgage for your leasehold condominium that is secured by the real property you hold in the leasehold condominium. Even Freddie Mac, the government's organization, accepts mortgages secured by leasehold condominiums. If you have a mortgage for a sale from DVD, its terms specifically state that the security for the loan is your undivided percentage interest in the leasehold condominium.

The mortgage interest is deductible as long as you meet the other qualifications for deducting mortgage interest, e.g., it has to be your "home"or a "second home," and timeshares can qualify as a second home, and the interest is deductible if you itemize deductions while not claiming the standard deduction.

DVC uses the point system for making reservations, but the points themselves are defined in the POS as simply symbols that represent what you actually own and points are deemed to have absolutely no monetary value, which is also the reason the POS prohibits transferring points for value.

With rentals, you are not actually renting points since they have no value, but instead the portion of annual ownership interest you have in the leasehold condominium represented by those points. You can deduct the proportion of the maintenance costs applicable to the ownership interest you rented, e.g., if those points for the rental are a third of your annual points, then that is the portion of your ownership interest you are renting and you can deduct a third of your maintenance costs. You can also deduct the same proportion of property taxes as a rental expense unless they are already included in your itemized deductions. Going beyond that may get a little risky but you may also be able to deduct depreciation for a year (in the proportion of the ownership interest rented) but that is more complex issue.

 

[Nursemanit]

Okay - don't we own a tiny piece of the building? Does that count as real estate? We don't have any DVC loan, but we do deduct property taxes (or did, before the tax laws limited the amount we could deduct, living in a high property tax state) paid on our BWV ownership.

You do not own any of the building unit or land - 0%

WDW owns the building and land - they give a lease to DVD fro 50 years, you have the right to use a portion of that lease.

If you had any portion in ownership - DVC would be required to list it on the 1098 - it is not an optional field.

Right from the IRS Instructions for Form 1098 (Rev. 01-2022)

Box 7. Address of Property Securing Mortgage If the address of the property securing the mortgage is the same as the payer’s/borrower’s mailing address, either check the box or leave the box blank and complete box 8. If the address or description of the property securing the mortgage is not the same as the payer’s/borrower’s mailing address, complete box 8.

Box 8. Address or Description of Property Securing Mortgage If the address of the property securing the mortgage is not the same as the payer’s/borrower’s mailing address, or CAUTION you did not complete box 7, enter the street address (including the apartment number) of the property securing the mortgage. Immediately below the street address, enter the city or town; state or province; country; and ZIP or foreign postal code of the property securing the mortgage. If the property securing the mortgage has no address, enter the property’s jurisdiction and the property’s Assessor Parcel Number(s) (APN), as indicated in the examples below. Synonyms for the APN include the Assessor’s Identification Number (AIN), the Property Identification Number (PIN), the Property Account Number, and the Tax Account Number. Examples: Washtenaw County, MI VV-WW-XX-YYY-ZZZ Jackson County, MO AA-BBB-CC-DD-EE-F-GG-HHH Nashua, NH XX-YY If an APN or other such identifying number needed to complete box 8 is not readily available for the property (having no address) securing the mortgage, enter a description of the property, using metes and bounds if available, or other descriptive language to properly identify the property. You may abbreviate as necessary. The following statement applies to boxes 7 and 8. If there is more than one property securing the mortgage, you may report the address of any one of the properties using boxes 7 and 8 and enter in box 9 the total number of properties securing the mortgage.

Box 9. Number of Mortgaged Properties If there is more than one property securing the mortgage, enter in box 9 the total number of properties secured by this mortgage. If only one property secures the mortgage, you may leave this box blank. For purposes of determining the number of properties, you may consider any single physical street address, 911 address, lot, parcel, APN, or tract of land to be one property.


__ I will email DVC and see if I can get a Corrected 1098 with the secured property - Lets see what they say.

 

[drusba]

States have statutes allowing the creation of condominiums on leased land called "leasehold condominiums." The owner of the land (here the main WDW Disney company) and the developer (here DVD) enter into the lease.The developer can sell, and transfer via a deed, actual real estate interests in the condominium (along with an interest in the common elements) subject to those real estate interests expiring when the lease expires. See, e.g., in Florida, Fl Stat. 718.401. Such statutes have minimum duration requirements for the lease. In Florida it is 50 years after the date of the first sale of a condominium unit in the building for residential condominiums, but only 30 years for a timeshare condominium. Id. Disney/DVD chose to use the 50-year period originally, but then had periods for the earlier resorts, other than OKW, for less than 50-years (VB, HH, BWV, BCV and VWL all had the same 2042 end date as OKW), and then started using the 50-year period for all new resorts starting with SSR when it went on sale in the early 2000's.

In essence, ownership or part ownership of a unit in a leasehold condominium is a legally recognized form of a real property interest that can be sold and transferred via a deed and subject to a mortgage. The failure to provide actual information as to unit owned is not fatal to the 1098 or the ownership interest a member has. A 1098 applies to and needs to be issued if, and only if, there is a mortgage secured by real estate. So the fact that the lender does not actually identify the applicable real estate on the form cannot mean it does not exist, e.g., my mortgage lender on my home failed to fill in both sections 7 and 8 on the 1098 I received in 2022.

 

[supersnoop]

You do not own any of the building unit or land - 0%

Yes you do. You own part of the building, but not the land. It does qualify as real estate; although it does seem like a complicated structure that can confuse some tax attorneys. As I always recommend, you have to do what you are comfortable defending to the IRS.

 

[Simba's Mom]

Can you only deduct anything for DVC points, taxes, etc. if you choose to itemize ("fill out the long form" they call it)?Otherwise, you still claim the income, but don't get any deductions.

 

[Nursemanit]

Yes you do. You own part of the building, but not the land. It does qualify as real estate; although it does seem like a complicated structure that can confuse some tax attorneys. As I always recommend, you have to do what you are comfortable defending to the IRS.

Nope - the building is owned by WDW.

Did anyone actually check with a Florida real estate attorney before buying?

 

[Nursemanit]

States have statutes allowing the creation of condominiums on leased land called "leasehold condominiums." The owner of the land (here the main WDW Disney company) and the developer (here DVD) enter into the lease.The developer can sell, and transfer via a deed, actual real estate interests in the condominium (along with an interest in the common elements) subject to those real estate interests expiring when the lease expires. See, e.g., in Florida, Fl Stat. 718.401. Such statutes have minimum duration requirements for the lease. In Florida it is 50 years after the date of the first sale of a condominium unit in the building for residential condominiums, but only 30 years for a timeshare condominium. Id. Disney/DVD chose to use the 50-year period originally, but then had periods for the earlier resorts, other than OKW, for less than 50-years (VB, HH, BWV, BCV and VWL all had the same 2042 end date as OKW), and then started using the 50-year period for all new resorts starting with SSR when it went on sale in the early 2000's.

In essence, ownership or part ownership of a unit in a leasehold condominium is a legally recognized form of a real property interest that can be sold and transferred via a deed and subject to a mortgage. The failure to provide actual information as to unit owned is not fatal to the 1098 or the ownership interest a member has. A 1098 applies to and needs to be issued if, and only if, there is a mortgage secured by real estate. So the fact that the lender does not actually identify the applicable real estate on the form cannot mean it does not exist, e.g., my mortgage lender on my home failed to fill in both sections 7 and 8 on the 1098 I received in 2022.

Then DVC should be willing to issue a corrected 1098 with section 8 filled out. Yes, leasehold condominiums exist but you have a lease - and your name is on it. My name is not on the DVD lease. DVD has their name on the lease ( they have the leasehold) you have a right to use of a share subject to both their lease and the member documents. It states that clearly on your real property deed.

 

[drusba]

1

Can you only deduct anything for DVC points, taxes, etc. if you choose to itemize ("fill out the long form" they call it)?Otherwise, you still claim the income, but don't get any deduction

If you rent to another via using your points to reserve a DVC room for that other, the deductions you can take, such as a proportion of the maintenance dues and property taxes, are allowable deductions from the rental income even if you otherwise use the standard deduction for income in general. The rental income and deductions are actually something that are reported on a separate Schedule E form.

 

[GoingSince1990]

Strange that if DVC ownership is not actually a “real estate interest”, DVC salespeople (“guides”) in both Florida and California are required to have real estate licenses in their respective states.

 

[Nursemanit]

Strange that if DVC ownership is not actually a “real estate interest”, DVC salespeople (“guides”) in both Florida and California are required to have real estate licenses in their respective states.

Acting as an agent for renting an apartment requires a license as well - no one said it's not a real estate transaction.