taxes and renting points

[mistysue]

Who knows a lot about US tax implications of renting points?
I know it's income. Lets say I rent my points out and I obviously want to deduct from the income some amount for the dues and the actual cost of the points. Is anyone fairly confident who could tell me how I should be doing thsi? I know my accountant hasn't dealt with this one before, so I want to know what to expect when she likely comes back with an odd answer.

For the sake a clarity, lets pretend it's a contract that had 25 years of use and the cost was magically exactly $100/point after closing. Do I get to say $4 per point + $7 dues per point and deduct that from the rent income? Do I technically have to do this as a side business to deduct from the income?

 

[erionm]

You would probably need to claim the entire amount received as income.

Depending on your tax situation, you may be able to separately deduct the property tax portion of the annual dues. If you can deduct these, they would be deductible regardless of renting points out or not.

 

[CraigInPA]

You can't deduct the pro-rated portion of the original cost.

You can deduct the dues, or at least the taxes portion of the dues, depending upon your tax treatment of the timeshare. Timeshares are covered under separate rules from other assets, and your accountant should be able to direct you to the best approach.

 

[wnielsen1]

Ask 10 different people and expect to get 10 different answers. This is really a discussion for you and your tax preparer. Relying on the internet is probably not the best method. However, I have generally seen this:

Might be deductible:
- Real estate taxes
- Dues excluding the portion for capital reserves

Highly Questionable:
- Deducting any portion of the initial buy-in unless following the tax depreciation rules and that includes future recapture rules when selling

Not deductible:
- The capital reserves portion of dues

 

[mistysue]

Ask 10 different people and expect to get 10 different answers. This is really a discussion for you and your tax preparer. Relying on the internet is probably not the best method. However, I have generally seen this:

Might be deductible:
- Real estate taxes
- Dues excluding the portion for capital reserves

Highly Questionable:
- Deducting any portion of the initial buy-in unless following the tax depreciation rules and that includes future recapture rules when selling

Not deductible:
- The capital reserves portion of dues

My accountant will be the final word, for sure, but I wanted to know how others are handling this to know if there is somewhere I should push back.
From experience I know my accountant is in the camp who will first tell me there's nothing to deduct to see if I'll pay on the whole thing, but I know that isn't completely correct.

I've seen in passing people deducting somewhere around $10/point from the income, which is why I'm thinking many likely do count some portion of the buy in. I'm thinking the real allowance would be the dues minus the reserves portion.

 

[wnielsen1]

My accountant will be the final word, for sure, but I wanted to know how others are handling this to know if there is somewhere I should push back.
From experience I know my accountant is in the camp who will first tell me there's nothing to deduct to see if I'll pay on the whole thing, but I know that isn't completely correct.

I've seen in passing people deducting somewhere around $10/point from the income, which is why I'm thinking many likely do count some portion of the buy in. I'm thinking the real allowance would be the dues minus the reserves portion.

Many may put in a portion of the buy in, but there is nothing in the Internal Revenue Code that supports deducting it. Even though it seems perfectly reasonable to do so.

 

[mistysue]

Many may put in a portion of the buy in, but there is nothing in the Internal Revenue Code that supports deducting it. Even though it seems perfectly reasonable to do so.

Now that I'm taking time to think about it- this seems like the type of thing you get to depreciate if the entire timeshare ownership is run as a business but not as your personal vacation spot- as a business all of the costs count and add up to a nice income loss if you aren't renting it out all the time. As people we can't deduct things nearly as much. At various points I usually regret not incorporating all sorts of things in my life. At least I didn't end up losing points, so I win whether or not the whole thing gets taxed.

I did leave my accountant a message, so eventually I'll have their answer as well.

 

[Chuck S]

Your accountant/CPA should be aware of how to claim this. It is likely a fairly standard Rental Income type thing. I have rental properties, though I haven't rented out my DVC, and I list all the property taxes, repairs, mortgage interest, HOA dues, and Century 21 management fees as deductions. Plus my CPA calculates the depreciation. The difference is C21 sends me a 1099, w2, or whatever it is, showing my gross rental income, like your employer would show your wages.

 

[mistysue]

For any wondering why in the world an intelligent adult would post on a public forum to get tax advice (basically to figure out which data to pull together) - here I am 5 days into wondering this question and still waiting on a call back from my CPA. The joys of small town America. Three phone messages in, and knowing their office will get around to it eventually...

 

[mistysue]

She called back this morning - "Is there some reason you would think you could write off or depreciate a building you don't actually own?" - This perspective made it make a little more sense why there isn't a write off for the "buy in" cost, only the taxes portion of dues.

 

[Anthony1971]

You should be able to deduct maintenance you would need the breakdown from Disney as salaries,transportation, grounds upkeep etc are not included only actual repairs as well as part of Mortgage interest. Of course it is all to the percentage of points you have to the amount you rented. In the end your real write off will not amount to much unless you are renting hundreds of points also you already may have taken these deductions if you are able to use itemized on your taxes. In the end your actual write off could amount to 10 bucks and an extra 100 to the CPA figuring it out so best to just be happy with easily identified property tax if you are not taking an itemized deduction otherwise there is no beneficial write off.

 

[CarolMN]

She called back this morning - "Is there some reason you would think you could write off or depreciate a building you don't actually own?" - This perspective made it make a little more sense why there isn't a write off for the "buy in" cost, only the taxes portion of dues.

You actually own a deeded interest in a lease. Leases can be depreciated in some cases. (Probably, not this one, though). I am not a CPA and not a tax expert, either.

 

[mistysue]

You should be able to deduct maintenance you would need the breakdown from Disney as salaries,transportation, grounds upkeep etc are not included only actual repairs as well as part of Mortgage interest. Of course it is all to the percentage of points you have to the amount you rented. In the end your real write off will not amount to much unless you are renting hundreds of points also you already may have taken these deductions if you are able to use itemized on your taxes. In the end your actual write off could amount to 10 bucks and an extra 100 to the CPA figuring it out so best to just be happy with easily identified property tax if you are not taking an itemized deduction otherwise there is no beneficial write off.

Luckily my taxes are nightmare enough already the extra form won't change my cost. We don't usually itemize, so it does add a write off against that portion of income which is a little helpful.

You actually own a deeded interest in a lease. Leases can be depreciated in some cases. (Probably, not this one, though). I am not a CPA and not a tax expert, either.

I did bring that up, and the ending discussion was basically that it only makes sense if we plan this to be a major recurring thing. Like if I owned 3,000 points with plans to rent out 2,500/year- but owning a few hundred so we will generally use them not so much. While I likely will give or rent random rooms to family in many years, I don't need an official side business of renting DVC so it's overkill.

I will say I spoke to a few people in the office now and most timeshares seem to have very different documentation, so it's much easier to track "I sold you my week" vs "some part of my points.