What % do you pay in taxes when you rent your points out?

[Mini Sorcerer's Mom]

If you rent your points out to a point rental company and have to fill out a W9 form for tax purposes what percentage is taxed? Thank you.

 

[supersnoop]

It's regular income, so whatever your top marginal tax rate is.

 

[Mini Sorcerer's Mom]

thank you

 

[GoingSince1990]

You do get to deduct the real estate tax and operating cost portion of the membership dues from the rental income received, and many people (including me) take a depreciation deduction too. Lots more info here:
https://www.disboards.com/threads/filling-out-a-1040-schedule-e-for-rental-income.3874675/

 

[drusba]

This would apply only to those who have enough points to do it with a timeshare: in any given calendar year, you can be exempt from paying any federal income tax on the timeshare rental income if you can qualify for the vacation home exemption. To qualify, you or your family need to stay in the timeshare for more than 14 days in the calendar year, and rent it for less than 15 days. Both conditions must be met to get the exemption.

 

[supersnoop]

You do get to deduct the real estate tax and operating cost portion of the membership dues from the rental income received, and many people (including me) take a depreciation deduction too. Lots more info here:
https://www.disboards.com/threads/filling-out-a-1040-schedule-e-for-rental-income.3874675/

I've heard arguments for depletion, but I don't think a timeshare could ever qualify for depreciation. As always, do whatever you're comfortable defending if you're audited.

 

[GoingSince1990]

I've heard arguments for depletion, but I don't think a timeshare could ever qualify for depreciation. As always, do whatever you're comfortable defending if you're audited.

The folks at Redweek beg to differ. And my accountants have always been very comfortable with taking depreciation on an asset that is guaranteed to be worth zero in 2042 or 2054. But yes, as always, everyone should consult a tax professional on these questions.
https://www.redweek.com/resources/articles/tax-aspects-renting-timeshare

 

[tidefan]

Just a question, wouldn't you only be taxed on the amount above what dues you paid on those points, plus whatever the amortized amount of initial pay-in was? Basically, the amount derived from the rental is your revenue, that amount minus what your costs were would be your profit.

 

[DonMacGregor]

I just included the 1099 as regular income. It was only $1,400, so it doesn't really move the needle. If you're renting out for significantly more, that route may not work out best for you.

 

[sethschroeder]

This would apply only to those who have enough points to do it with a timeshare: in any given calendar year, you can be exempt from paying any federal income tax on the timeshare rental income if you can qualify for the vacation home exemption. To qualify, you or your family need to stay in the timeshare for more than 14 days in the calendar year, and rent it for less than 15 days. Both conditions must be met to get the exemption.

Perfect as I qualify for that. I will take a look at it closer.

 

[crisi]

I've heard arguments for depletion, but I don't think a timeshare could ever qualify for depreciation. As always, do whatever you're comfortable defending if you're audited.

Not DVC for sure. But people do weird things with their taxes and the IRS is short staffed, so you do you. If I'm doing your taxes, unless you are running DVC as a business (which would be against the contract) I would tell you to find a different accountant if you wanted to write off anything other than dues.

 

[crisi]

Just a question, wouldn't you only be taxed on the amount above what dues you paid on those points, plus whatever the amortized amount of initial pay-in was? Basically, the amount derived from the rental is your revenue, that amount minus what your costs were would be your profit.

If I were doing your taxes, I wouldn't let you put in the amortized amount. That says you are using the timeshare as a business, which would be in violation of your contract, and open up a whole 'nother can of worms. As I said, the IRS is really short staffed, but when I got my accounting degree, my accounting professor had worked doing private taxes for a long time and had horror stories - the IRS really doesn't like timeshare deductions, they don't like - and this is some kind of paraphrase - "schemes where you get the U.S. government to pay for your vacations via tax write offs."

 

[GoingSince1990]

Not DVC for sure. But people do weird things with their taxes and the IRS is short staffed, so you do you. If I'm doing your taxes, unless you are running DVC as a business (which would be against the contract) I would tell you to find a different accountant if you wanted to write off anything other than dues.

Say it was 2041 so BCV had 1 year to go and was worth $30 per point, with dues for that final year being $10 per point. If someone buys some BCV points for $30/pt, rents them out at $40/pt and pays the dues of $10/pt, they have come out even pre-tax. But unless they are allowed to deduct the $30 purchase cost (which is the same as amortizing it over that final year) they will be taxed on $30 of income which would seem to be very unfair as they have actually made a profit of zero.

 

[Jack Kerouac]

If I were doing your taxes, I wouldn't let you put in the amortized amount. That says you are using the timeshare as a business, which would be in violation of your contract, and open up a whole 'nother can of worms. As I said, the IRS is really short staffed, but when I got my accounting degree, my accounting professor had worked doing private taxes for a long time and had horror stories - the IRS really doesn't like timeshare deductions, they don't like - and this is some kind of paraphrase - "schemes where you get the U.S. government to pay for your vacations via tax write offs."

But the government pays for so many other things, many of which are less deserving than our vacations to Disney. I think we should all lobby the government to pay for our DVC vacations. Maybe even our Canadian neighbors could get Trudeau to throw some CAD at us in solidarity. Together, we could make our voice heard. I mean, there are dozens of us! Dozens!

 

[drusba]

If I were doing your taxes, I wouldn't let you put in the amortized amount. That says you are using the timeshare as a business, which would be in violation of your contract, and open up a whole 'nother can of worms. As I said, the IRS is really short staffed, but when I got my accounting degree, my accounting professor had worked doing private taxes for a long time and had horror stories - the IRS really doesn't like timeshare deductions, they don't like - and this is some kind of paraphrase - "schemes where you get the U.S. government to pay for your vacations via tax write offs."

As you know the issues, could you provide an answer to the following:

Our dues budgets provide the amount per point for operational charges, capital reserves, and property taxes. I have seen mention that capital reservese cannot be deducted as an expense from the rental but maintenance costs and property taxes can (is that correct?). Also, am I correct to assume that you can deduct maintenance costs and property taxes only in the proportion of points owned are used, e.g., if you own 500 points and use only 100 for a rental, are you allowed to deduct only 1/5 of your maintenance costs and property taxes for a year?

Finally, the operation costs budget we get annually lists many things that those costs apply to. Are there things on that list we cannot claim as a deduction as part of "maintence costs"?

(Note, I did a rental in 2022, the only one I have ever done, mainly because I had to use up some excess banked points, and I am just trying to determine what I can deduct as an expense from the rental income that is actually allowed without trying to stretch beyond that. Note also that I know you can deduct property taxes in general from overall income, but I do not deduct them that way because my allowable overall deductions, including home and DVC property taxes, do not exceed my standard allowed overall deduction from income.)

 

[GoingSince1990]

As you know the issues, could you provide an answer to the following:

Our dues budgets provide the amount per point for operational charges, capital reserves, and property taxes. I have seen mention that capital reservese cannot be deducted as an expense from the rental but maintenance costs and property taxes can (is that correct?). Also, am I correct to assume that you can deduct maintenance costs and property taxes only in the proportion of points owned are used, e.g., if you own 500 points and use only 100 for a rental, are you allowed to deduct only 1/5 of your maintenance costs and property taxes for a year?

Finally, the operation costs budget we get annually lists many things that those costs apply to. Are there things on that list we cannot claim as a deduction as part of "maintence costs"?

(Note, I did a rental in 2022, the only one I have ever done, mainly because I had to use up some excess banked points, and I am just trying to determine what I can deduct as an expense from the rental income that is actually allowed without trying to stretch beyond that. Note also that I know you can deduct property taxes in general from overall income, but I do not deduct them that way because my allowable overall deductions, including home and DVC property taxes, do not exceed my standard allowed overall deduction from income.)

Yes, deduct the taxes and operating expenses, but not the capital reserve, for only the number of points you rented (so yes, if you owned 500 points and only rented out 100, that would be one fifth of your bill). The capital reserve is not deductible, but keep track of it as it does increase your basis to reduce your possible capital gains tax bill in case you ever resell at a profit. As for scrutinizing what Disney spends the operating costs on, I’ve never heard of anyone worrying about that and I would be amazed if the IRS wanted to get into that level of detail.

 

[drusba]

Yes, deduct the taxes and operating expenses, but not the capital reserve, for only the number of points you rented (so yes, if you owned 500 points and only rented out 100, that would be one fifth of your bill). The capital reserve is not deductible, but keep track of it as it does increase your basis to reduce your possible capital gains tax bill in case you ever resell at a profit. As for scrutinizing what Disney spends the operating costs on, I’ve never heard of anyone worrying about that and I would be amazed if the IRS wanted to get into that level of detail.

Thank you. I have actually always kept the annual info on budgets and payments, including capital reserves, but until now I never knew there was a possible future financial reason for doing so.

 

[crisi]

As you know the issues, could you provide an answer to the following:

Our dues budgets provide the amount per point for operational charges, capital reserves, and property taxes. I have seen mention that capital reservese cannot be deducted as an expense from the rental but maintenance costs and property taxes can (is that correct?). Also, am I correct to assume that you can deduct maintenance costs and property taxes only in the proportion of points owned are used, e.g., if you own 500 points and use only 100 for a rental, are you allowed to deduct only 1/5 of your maintenance costs and property taxes for a year?

Finally, the operation costs budget we get annually lists many things that those costs apply to. Are there things on that list we cannot claim as a deduction as part of "maintence costs"?

(Note, I did a rental in 2022, the only one I have ever done, mainly because I had to use up some excess banked points, and I am just trying to determine what I can deduct as an expense from the rental income that is actually allowed without trying to stretch beyond that. Note also that I know you can deduct property taxes in general from overall income, but I do not deduct them that way because my allowable overall deductions, including home and DVC property taxes, do not exceed my standard allowed overall deduction from income.)

That's pretty much my understanding. I haven't done personal taxes in a while other than my own, and when I did the IRS guidance on it wasn't clear (like a lot of IRS letters). I think you are safe if you deduct maintenance costs proportionally, including capital reserves (my argument there would be it isn't material to break it out, you'd need a LOT of points before that would move a needle into being material, IMHO), but I wouldn't deduct any sort of depreciation or depletion - for one thing, that gets you, from an IRS perspective, into being a business - once you start treating things like a business, from an IRS perspective, its arguably a business. And once you start treating it like a business for tax purposes, then, IMHO, the whole "commercial use" clause comes into play - but you'd know better than I if that argument would fly. For the same reason, I wouldn't deduct any of your costs in "advertising" your points - again, that starts getting into running a business and not just disposing of a few points you can't use. I also wouldn't run my DVC rentals through my business for the same reason - which would move my income off the ordinary line. (I've also rented points a single time through a broker).

But I'm conservative on these things. You could make a case for being much more aggressive, the IRS isn't clear - and I've certainly worked with much more aggressive accountants (and watched six figure penalty checks being handed over to the IRS - my current business partner is dealing with ten years of payments to the IRS for stupid stuff - like "forgetting" to report income and being overly aggressive on business deductions - there is a reason she does sales and I handle the money). The reality is, the IRS is short staffed and underfunded and working on antiquated equipment, audits are way down because of it, and Disney isn't going to start subpoenaing your personal tax returns to prove you are running a business. If its worth the risk to you, you go for it. Me, its worth paying the IRS $30 to keep my mind at ease.

 

[Anthony1971]

I will simply add: Anyone can read the rules and interpret them the way they wish. The IRS will say we do not agree with you, you owe us X prove otherwise or pay and they may go back years. IMO it will be very hard to prove any type of depreciation for a property you do not own but only have a right to use for x years much less other reasons. A timeshare that you own in perpetuity you may have a fighting chance. As mentioned taxes, maintenance and costs of a rental like advertising-even a long distance phone call if you can show you paid for it are allowed a the reserve part of dues is not deductible because it has not been realized. I have had the pleasure of being through enough audits thankfully corporate only... The honest (if you will) auditors will tell you from the start I am here I am going to get paid..... So make sure you have a much more reasonable valuation as a backup so you do not waste time as logic is worth 0 proof is the only way you will get the "auditor getting paid" down. For the most part if there is not 500 to be made you likely will get skipped over but if there is enough IRS agents or they look back and the agent knows he is getting paid you may not be so lucky.

 

[Shelly F - Ohio]

The government delayed it this year but next year you will probably get a 1099-K because payment service such at Paypal and Zelle ect will have to send you a 1099-K form if you receive more than $600 and you will have to pay FICA tax for running a business which is 15.3%