Tax treatment of income from renting out points?

[DVCconvert]

I think I know the answer, but I'm sure someone here has experience at this.

If I were to rent out some points I could not use, and I have no debt on the points contracts; what is deductible as legal expenses against that income?

I assume:

1) MF's on the points rented
2) phone calls/postage in connection with the process

Anything else? I assume this is treated as 'active' and not 'passive' income?

TIA

 

[Tramp68]

Unless renting is a yearly business for you why would you even claim a one shot rental income? I can't imagine anyone is that honest with the IRS...

 

[DVCconvert]

I can't imagine anyone is that honest with the IRS

Well, I hear you, but I choose not to take the risk of possible penalties and interest which could cost 10 times whatever profit I stand to gain from not declaring the tax liability.

 

[Tramp68]

Well, if you insist on declaring every penny you make...I hope you are also paying the sales tax on EVERY purchase you make over the internet including any Ebay purchases.

Don't forget to deduct the COST of the item you are renting. The initial investment and any interest you paid over the course of the loan divided by the number of points you own divided by the number of years you will have owned them when they expire multiplied by the number of points that you have rented.

Think of this not as a rental but as a sale of goods. A number of points that are valid for a one time use. To rent the points would imply that you are getting them back when you are not, they are gone. You will get a new set of points in your next UY.

I would hate to be your accountant on a year in which you held a yard sale.

 

[Caskbill]

There's nothing wrong with being honest. It's too bad more people don't feel that way.

Sales taxes vary by states and apply differently to internet purchases.

You do not need a tax account to manage a yard sale.

As to your DVC rental income, I'm not 100% certain but I think from past discussions, it is treated as regular income and there are no deductions at all. It is totally different from for example rental income of a wholly owned vacation home where you can deduct many expenses. You might just search the IRS.gov site and see what you can find.

 

[Tramp68]

I guess I should apologize for any negative tome that could be inferred from my posts. It was a poor attempt at sarcastic humor. I just hate to think of where the small business person or self employed contractor would be if they did not *hide* a little bit of their income. Most of these people would not be able to support their families if they didnt. I get jealous because my wife contracts for the state and every penny is accounted for. To declare every other penny we make would mean having us pay more than 20% of our gross income to the IRS...

But, Since we are talking about being honest here, how can anyone even rent out points when it is expressly against the DVC contract?

Though that aside, once again, I say...this isnt a rental it is a sale. A sale of points. The points are used to make a reservation for accomadations. The profit from sale of property is reduced by the cost of the item.

Why does this argument not work?

 

[DVCconvert]

Tramp68 posted:

Well, if you insist on declaring every penny you make...I hope you are also paying the sales tax on EVERY purchase you make over the internet including any Ebay purchases.

Tramp, Pal, Maybe it's time to switch to DeCaf? {jokingly said}

I rarely make any purchases on Ebay, or on line - sometimes, but rarely, and yes my state requires those purchases (along with catalog orders) to be declared and sales tax paid.
I do this willing, because despite the fact I tend to be a conservative, I know that should my state or national government lack the income it needs, it could impact vital programs (food stamps, aid to single mothers, help for the homeless, fire protection, water/sewer service, schools, defense, etc..).

Having travel widely abroad, I recognize how lucky I am to be living in this country. I have been sucessful and feel it is "the right thing to do" in return for the privilege of being an American.

Don't forget to deduct the COST of the item you are renting. The initial investment and any interest you paid over the course of the loan divided by the number of points you own divided by the number of years you will have owned them when they expire multiplied by the number of points that you have rented.

There never was any debt on any of my contracts, I paid cash for them.
So I am unclear on what would be considered a legitimate "cost" excepting those which I mentioned in my orginal post. I think the fact that we also use some points for our own is partly confusing me.

Think of this not as a rental but as a sale of goods. A number of points that are valid for a one time use. To rent the points would imply that you are getting them back when you are not, they are gone. You will get a new set of points in your next UY.

Agreed.

I would hate to be your accountant on a year in which you held a yard sale.

You might be surprised to learn that I've never had a yard sale.
When something isn't truely junk or trash, we normally give it to Goodwill or thrift shops or churches to get whatever benefit they can from the things we no longer need or want.

I guess I should apologize for any negative tome that could be inferred from my posts.

No offense taken!

 

[DVCconvert]

Posted by Caskbill:

but I think from past discussions, it is treated as regular income and there are no deductions at all.

You're proably right ( I'll find out next April! )
I presume that that would be taxed at the taxpayer's regular income bracket?
But not treated in the same fashion as say a capital gain?

 

[bicker]

As indicated earlier, there are minimum criteria that must be met to qualify for any deductions from rental income, qualifications so high that few if any DVC members qualify. Even if we did qualify, owners cannot deduct a portion of the purchase price for rental property, rather the value of the property must be depreciated. I don't believe depreciation is legal for lease-holds.

 

[Tramp68]

There never was any debt on any of my contracts, I paid cash for them.
So I am unclear on what would be considered a legitimate "cost" excepting those which I mentioned in my orginal post. I think the fact that we also use some points for our own is partly confusing me.

If you sell an item you only pay taxes on the profit, correct? So, If you paid $85 for a point for say 42.5 years (using nice numbers) then that point COST you $2 per year. Your maintenace fees are appx $4 per year. Therefore the cost of each point for each year is appx $6. If you rented your points at $10/point then your profit is $4 per point. I am not sure if this argument would hold up but it sounds legitimate to me.

A quote from IRS:

You are considered to use a dwelling as a home if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days it is rented to others at a fair rental price
There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

This sounds to me like If you stay there 2 days and rent 14 days you have met a special requirement to NOT have to report the income.
I.E. you have stayed there for more than 10% of the time it was rented and you rented for less than 15 days.

I asked my accountant, my father's accountant and a Tax attorney (well, he can represent you all the way up to but not including court itself..not sure what that makes him) All 3 people said to not bother reporting any of it unless you do it on a regular basis.
*edited 2 typos*

 

[CarolMN]

....(snip)....But, Since we are talking about being honest here, how can anyone even rent out points when it is expressly against the DVC contract? ......

Renting is not forbidden. The documents I signed/received at purchase mention renting an ownership interest more than once. Among other things, it says that there is no guarantee that I would be able to find someone to rent my points and that I would be competing against Disney if I did. No place in my documents does it say that I cannot rent my interest to someone else.

Perhaps you are thinking of the wording that prohibits an owner from using DVC for a "commercial" enterprise.

Best wishes-

 

[bicker]

A quote from IRS:

You are considered to use a dwelling as a home if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days it is rented to others at a fair rental price
There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

This sounds to me like If you stay there 2 days and rent 14 days you have met a special requirement to NOT have to report the income. I.E. you have stayed there for more than 10% of the time it was rented and you rented for less than 15 days.

Uh, no. In order for the special rule to apply, you must, among other things, use the dwelling for personal purposes at least 14 days, period. That's a minimum requirement.

 

[Dean]

As Carol pointed out, renting is expressly allowed. I agree it would be difficult but not impossible to meet the free 2 week free rental clause. I do report it as income and generally deduct the applicable maint fees and any minor expenses like phone calls, mailings and the like. If you had someone that did not pay and you lost points, you could also deduct the value against successful rentals. But only in the situation you could prove it was to be rented out and then ended up not being, that could be a tricky one.

If one set it up to ONLY rent the points, you might then deduct a home office, computer business use, bank fees, paypal fees, credit card expenses directly applicable and even depreciate the asset. You might then be liable for part or all the selling price if you ever parted with it. And before anyone reminds me, I know DVC legal paperwork prohibits "commercial use". But without a workable definition and with no indication of enforcement, I don't think this is a major roadblock at present. And you could do a SEPP or similar retirement plan based on the income, just like any other sideline including Avon, Mary Kay, etc.

 

[DVCconvert]

thank you Dean, CarolMN, and bicker for your imput!

 

[CharlesTD]

We don't have to claim it in Canada nor do we claim the interest on the mortgage for DVC on our taxes.

 

[Tramp68]

I see I missed the words "greater of" which makes a huge difference in the exemption clause.

I swear I saw somewhere that you were not allowed to rent your points, but I guess I could be wrong there. I went looking for it and saw a line specifically stating that you can rent.

Let me open up another can of worms...how would you account for BORROWED points that are rented out. You havent paid the MF on them yet so I guess they wouldnt be deductible. And for some use years you don't pay your maintenance fees in the same calendar year you use them, can you deduct fees that were paid last year, or next year for that matter?

Again, what about considering this the sale of an item, specifically the points, rather than a rental..it does open up more opportunity for deductions?

Sleightly off topic, I swear that I read you are not allowed to transfer points to another member for cash or am I wrong again and I should just put my tail between my legs and go away for awhile???

 

[DVCconvert]

Let me open up another can of worms...how would you account for BORROWED points that are rented out. You havent paid the MF on them yet so I guess they wouldnt be deductible.

Tramp68, I wasn't thinking of renting out borrowed points,only current "in UY points". We own over a thousand points, and find that for a year or two, we may not be able to use much more than 1/2 of what we own. We always pay MF in full in January-so that's not an issue either.

 

[CarolMN]

.....(snip)....
Slightly off topic, I swear that I read you are not allowed to transfer points to another member for cash or am I wrong again and I should just put my tail between my legs and go away for awhile???

Don't leave! Differences of opinion keep the Forum from sinking into a very boring "Festival of Love and Pixie Dust". We haven't talked about this subject for a while, LOL. It's very hard to bring up an entirely new subject so we are reduced to recycling the old ones.

I believe that you are correct in saying that there is something somewhere that says a memer is not allowed to receive compensation for transferring points. Many of us (me included) believe the "no compensation rule" is there only to protect Disney - they do not want to (and will not) get involved with any dispute involving a transfer or reservation rental. The rule keeps us from involving them if we don't "play nice" with each other. But as long as we don't involve them in our private transactions, they really don't care if we trade money for points.

Whatever the wording, the rule has never been enforced (the CMs never ask about the money arrangements, LOL). That said, DVC considers transferring points to be a "final" transaction and will not reverse point transfers even if someone asks/complains.


Best wishes-

 

[Dean]

Sleightly off topic, I swear that I read you are not allowed to transfer points to another member for cash or am I wrong again and I should just put my tail between my legs and go away for awhile???

You are correct but there are other factors. As Carol has so correctly pointed out, DVC has shown no interest in policing this. Then the question becomes is it ethical, and of course it is. DVC should really fix the way that system works but that should not prevent a member to doing transfers. But it is my opinion that DVC could prevent ALL transfers if they wanted and MIGHT be able to enforce the no pay for transfers, though I doubt it. One question is whether DVC is transferring points on contracts they buy back, if so, they would have to follow the same rules. And while they can legally subdivide ROFR contracts, I'm not sure they can combine them, at least legally. In this sense legally meals within the rules, not laws. The difference between transfers and renting otherwise is that renting is expressly allowed both in the POS and in case law in FL and many other states, with some caveats of course.

No reason to run away, just stay and play.

 

[Tramp68]

CarolMN-

I am not leaving..was more a figure of speech. I do not take personal offense to posts. I stick to the issues, never a personal attack just on the facts. I was more referring to the fact that I have posted misinformation and shouldnt really comment further..

As far as the "can of worms" comment..I wasnt being specific there, was asking in general. If I do develop a conscience (sp?) I have some rental income to declare this year, but my fees were all paid for this year..I also rented a few borrowed points so wont pay MF on them until NEXT year.

So..any opinions?