Tax Ramifications For Selling Dvc

[chainkid]

I've been thinking about selling one of my contracts and then buying a larger BWV contract so all my points will be at the same resort. My question is if I sell my points I will realize a gain over what I paid for them. So I assume this will be a taxable event that won't be offset by my buying a different contract at higher value. If anyone has done this, how did you handle it. thanks Joan

 

[BillM]

Good question. I did the same thing recently except I sold at a slight loss. I think your assumption is correct, but I would be interested in some ofour members opinion who are tax experts.

 

[Plutofan]

I would suggest that you talk to a local tax professional and explain that DVC has a set term date. I would expect that you will have to make an adjustment to your cost basis. You will probably will not get a post from a professional due to the rules listed in IRS circular 230 that governs written tax advise by a professional.

 

[salmoneous]

IMy question is if I sell my points I will realize a gain over what I paid for them. So I assume this will be a taxable event that won't be offset by my buying a different contract at higher value.

Keep in mind that any amounts in the maintenance fees for capital improvements can be added to your cost basis.

 

[Plutofan]

Keep in mind that any amounts in the maintenance fees for capital improvements can be added to your cost basis.

A lot of times when you deal with the IRS substance over form prevails. Since a case could be made that members are really leasing the property from Disney you may have a tough time justifying to an agent the capitalization of the capital improvement fees. If you could capitalize the fees there are other problems that would arise since we do not receive financial statements on the resorts. All of this assumes that an agent really understands DVC.

 

[dvc-NE]

Good question. I did the same thing recently except I sold at a slight loss. I think your assumption is correct, but I would be interested in some ofour members opinion who are tax experts.

Bill, I'm in the same boat it sounds like. I sold a 100 pt contract I bought for $79 in Nov 2003 @ SSR . It sold this past August for $80 but with the commision, etc, I wound up with about $6,900 at closing. I too, would appreciate to know what the deal is. Matt

 

[salmoneous]

Bill, I'm in the same boat it sounds like. I sold a 100 pt contract I bought for $79 in Nov 2003 @ SSR . It sold this past August for $80 but with the commision, etc, I wound up with about $6,900 at closing. I too, would appreciate to know what the deal is. Matt

Expenses directly tied to purchase and sale of the contract would be included in the cost basis. This would include any commissions, title and escrow fees, etc.

Note: I disagree with those folks who think there is some ambiguity or lack of understanding at the IRS over DVC. It's a real estate transaction that falls under the vacation/second home status. But, as always, you should check with a real tax professional, not some guy posting on the internet.

 

[Doctor P]

Expenses directly tied to purchase and sale of the contract would be included in the cost basis. This would include any commissions, title and escrow fees, etc.

Note: I disagree with those folks who think there is some ambiguity or lack of understanding at the IRS over DVC. It's a real estate transaction that falls under the vacation/second home status. But, as always, you should check with a real tax professional, not some guy posting on the internet.

Timeshares are an incredibly separate animal from vacation homes. Do a little tax research and this will become apparent very quickly.

 

[salmoneous]

Timeshares are an incredibly separate animal from vacation homes. Do a little tax research and this will become apparent very quickly.

No need to be condescending or get into some sort of contest. If I post anything you disagree with, please correct me.

"Timeshare" isn't a type of "thing" under the tax code - it is a form of ownership. DVC sells vacation homes. The form of ownership is time-sharing.

From a capital gains standpoint, DVC is a vacation home.

 

[Doctor P]

No need to be condescending or get into some sort of contest. If I post anything you disagree with, please correct me.

"Timeshare" isn't a type of "thing" under the tax code - it is a form of ownership. DVC sells vacation homes. The form of ownership is time-sharing.

From a capital gains standpoint, DVC is a vacation home.

Sorry, but you are actually wrong about this. I researched the tax code and manuals this morning. The tax treatment of timeshares is NOMINALLY the same as a traditional vacation home, but the application of the rules with respect to capital gains, rental property, etc. is in practice quite different.

 

[salmoneous]

but the application of the rules with respect to capital gains, rental property, etc. is in practice quite different.

Please - do tell. What are the difference in capital gains treatment?

 

[Doctor P]

Please - do tell. What are the difference in capital gains treatment?

Just google timeshares "tax treatment" and you will find some of the literature.

 

[JimVL]

But, as always, you should check with a real tax professional, not some guy posting on the internet.

I just opened this thread, and I don't have a clue about how this would work, but I think the above quoted advice, is just about the best advice you can get.

 

[Doctor P]

I just opened this thread, and I don't have a clue about how this would work, but I think the above quoted advice, is just about the best advice you can get.

And with that I fully agree!!!

 

[kdzgon]

A lot of times when you deal with the IRS substance over form prevails. Since a case could be made that members are really leasing the property from Disney you may have a tough time justifying to an agent the capitalization of the capital improvement fees. If you could capitalize the fees there are other problems that would arise since we do not receive financial statements on the resorts. All of this assumes that an agent really understands DVC.

I agree with a prior poster - I think the classification of our holdings as real estate ownership is pretty clear-cut from an IRS viewpoint and I believe you would have a very difficult time making the case that "members are leasing the property". I have been involved with real estate partnerships (low-income housing with tax credits attached) structured so that the property ownership reverts to the developer at the end of a set period - that does not change the classification of the investment in the intervening years. IMHumbleO, I would hope anyone that might want to try and make a case for "leasing" was not previously deducting DVC real estate taxes on their Sch As...

DISCLAIMER: All opinions rendered are personal, not professional - worth the price charged

 

[Plutofan]

Before you assume anything you need to contact a tax professional. There are various IRS provisions out there on treating different assets with a bargain purchase option. Since the resorts revert back to Disney at the end of the term my concern would be that this may change the presumed treatment of the asset. You can still have an asset treated differently by the IRS due to a bargain purchase option and still pay real estate taxes. For financial statement purposes I would not be surprised to find that Disney treats the resorts on its books as an asset and treats the present value of the up front payments as lease income over the term of the DVC. I am not saying that this is the way the IRS would treat it but anyone who does not consult a tax professional and researches the proper treatment is taking a risk if they get audited by a knowledgable IRS agent.

 

[kdzgon]

Sorry, but you are actually wrong about this. I researched the tax code and manuals this morning. The tax treatment of timeshares is NOMINALLY the same as a traditional vacation home, but the application of the rules with respect to capital gains, rental property, etc. is in practice quite different.

I would love to see some of your research, as it sounds as if it differs significantly from what I understand. Here is an excellent reference article from Warren, Gorham and Lamont (I believe it is avail through RIA), both highly-regarded providers of tax research for tax professionals TAXATION OF TIMESHARES - ACQUISITION, USE, AND DISPOSITION ISSUES . (See pg 10 for details re: basis calculations in a sale and the footnotes for additional recommended reading.) Although this was written in 2000, it was copyrighted in 2006 so my guess the info is still accurate as of this date. It is written in a very straightforward style, and is highly informative for anyone not familiar with the stated issues of timeshares.

Laurie

 

[Doctor P]

I would love to see some of your research, as it sounds as if it differs significantly from what I understand. Here is an excellent reference article from Warren, Gorham and Lamont (I believe it is avail through RIA), both highly-regarded providers of tax research for tax professionals TAXATION OF TIMESHARES - ACQUISITION, USE, AND DISPOSITION ISSUES . (See pg 10 for details re: basis calculations in a sale and the footnotes for additional recommended reading.) Although this was written in 2000, it was copyrighted in 2006 so my guess the info is still accurate as of this date. It is written in a very straightforward style, and is highly informative for anyone not familiar with the stated issues of timeshares.

Laurie

This is indeed a very good resource and one that seems accurate and one that I had already consulted. If you read it carefully, things are not quite as simple as they might seem on the face and the language that is used is much more precise than it might appear. Some of the issues are stated in such a way as to give the impression of one thing to a lay reader and mean something very different to a tax professional. The issue of calculating a gain is one of these (be sure to read the section on mixed use carefully). Again, the best advice is to contact your tax professional as they know your tax situation best. I would also suggest that there is evidence that the tax treatment of groundlease timeshares MAY be different in some respects than that of others.

 

[Plutofan]

What I have been stating is that you take a risk basing a transaction on tax code or interpretation of tax code that relates to an industry as a whole and not to your specific case. I believe most timeshares have the owners retain the ownership interest. Most DVC members consider it a prepaid vacation plan. Also you would have a hard time convincing a IRS agent that you really own but you are giving it back to Disney for nothing in return. DVC is currently structured where Disney gets complete ownership at the end of the term. When a specific case does not fit completely into the norm it is everyone's best interest to consult a professional and explain how it works so you and the tax professional can make an informed decision. I am not saying that anyone is wrong but if you assume Disney is structured the same way as all other timeshares you may be surprised.

 

[kdzgon]

Sorry, but you are actually wrong about this. I researched the tax code and manuals this morning. The tax treatment of timeshares is NOMINALLY the same as a traditional vacation home, but the application of the rules with respect to capital gains, rental property, etc. is in practice quite different.

I still haven't seen any research that supports the statement that "the application is ...in practice quite different". I would be interested to read that "other" research you found - that is, assuming you'd believe my simple mind might be able to comprehend the information.

This is indeed a very good resource and one that seems accurate and one that I had already consulted. If you read it carefully, things are not quite as simple as they might seem on the face and the language that is used is much more precise than it might appear. Some of the issues are stated in such a way as to give the impression of one thing to a lay reader and mean something very different to a tax professional. The issue of calculating a gain is one of these (be sure to read the section on mixed use carefully). Again, the best advice is to contact your tax professional as they know your tax situation best. I would also suggest that there is evidence that the tax treatment of groundlease timeshares MAY be different in some respects than that of others.

And from which perspective are you reading this - as a tax professional or a lay person? I am sure you are much more experienced and informed than the rest of us, myself included. We are just in the process of closing, so I have no official documents to which I may refer, but I am curious - are you saying DVC is a ground lease timeshare?

As to the reference I posted, it made it quite clear within that the info pertained to deeded interests, of which DVC is one (in fact, it is even cited as an example). Actually, if one takes the time to read it, one should also realize the time to consult a tax professional is either when first considering a purchase and/or renting points, NOT just when selling (or after the sale). For instance, depreciation adjustments are not based on depreciation taken, but on "allowed or allowable".

As to "knowledgeable IRS agents", the system is so overburdened, I don't think the average small timeshare owner need be concerned about a full-scale audit of a DVC disposition. Do what you (and/or your tax professional) believes is accurate and reasonable based on available information, and try not to stress out about the "what-ifs".