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

[GoingSince1990]

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%

Rental income is not considered earned income so there is no FICA tax. Income tax is due, of course, whether or not you receive a 1099, despite some people saying "I like to use David's to rent my points as they are in Canada so don't send you a 1099 so I don't have to pay tax". Which of course is a bit risky as one day the IRS might be able to obtain all of David's records and bill all of those folks for a tidy sum in back taxes, interest, and penalties.

 

[DonMacGregor]

Rental income is not considered earned income so there is no FICA tax. Income tax is due, of course, whether or not you receive a 1099, despite some people saying "I like to use David's to rent my points as they are in Canada so don't send you a 1099 so I don't have to pay tax". Which of course is a bit risky as one day the IRS might be able to obtain all of David's records and bill all of those folks for a tidy sum in back taxes, interest, and penalties.

This is why I just submit it as income and call it a day. No messing with amortizing XXX, and separating out YYY from ZZZ. Of course, I only rent once in a blue moon. but for the amount of income we're talking about, I just pony it up and call it a day.

 

[tidefan]

The IRS could probably tax you if you brought family and they bought you dinner...

 

[Brian Noble]

There is a good article over at TUG about many of these issues.

https://tug2.net/timeshare_advice/income_taxes_and_timeshares_from_an_accountant.html

 

[crisi]

The IRS could probably tax you if you brought family and they bought you dinner...

Technically, if that makes them exceed the annual gift allowance to you, yes, they can. Now, the gift exclusion for 2022 is $17k, so its unlikely that your family is giving you $17k worth of value. And that's per person/per person - I can give my son $17k, my husband can give my son $17k, and then we can both gift our youngest $17k. Your relative would be having to transfer a lot of value in gifts before it would trigger - but if you had a sibling who was really wealthy and helped you out with gifts - monetary or otherwise, dinner at Disney could turn out to be a taxable event.

 

[Boardwalk III]

There is a good article over at TUG about many of these issues.

https://tug2.net/timeshare_advice/income_taxes_and_timeshares_from_an_accountant.html

Thanks for reposting this article, as have seen it posted before. I anticipate renting a small portion of my points (<25% of total ) more frequently in the coming years.

I’m particularly interested in the reference in the article to the vacation home exemption rules based on the following section. Is this really a thing? (I have enough points for 4 weeks of stays, and use at least 15 days of points for my own use ):

Would appreciate any thoughts!

“VACATION HOME RULES​

Wouldn't the vacation home tax rules apply to a rental gain, allowing you to avoid reporting the income, because you rented the property for fewer than 15 days? No, the vacation home tax rules will usually not apply. Thus, you must report the rental profit - whether you own one week or a number of weeks.

The vacation home rules apply only if you use the "vacation home" for at least 15 days each year for personal purposes. A timeshare can qualify as a vacation home. However, unless you own at least four weeks at a single resort, using at least three of the weeks for personal purposes, you can't take the benefit of excluding the income from renting the fourth week, because there is no practical way that you could use your timeshare for at least 15 days and rent it out to others.”

 

[Brian Noble]

That’s what @drusba was alluding to above. You’d probably want to run this by your own accountant to be sure.

I think the term “a single resort” in the explanation above might give me pause unless your qualifying stays and rentals are all in one place.

 

[SheSingsAlong]

I'm a first time DVC buyer and I'm keeping myself occupied by researching the ins and outs of renting points (and the tax implications of doing so). My personal taxes have rarely been very complicated so I don't have a super deep understanding of tax law.

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.

Why is the capital reserve portion of member dues not allowed to be deducted from rental income? Sorry if this is a very elementary question, but I've seen it stated repeatedly on DisBoards and never seen an explanation of why.

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)

So it seems this is saying that because the capital reserve portion of member dues is so small, it probably won't make a meaningful difference in the taxable rental income on something like 100 points whether you include or exclude capital reserve as a deduction, yes?

 

[GoingSince1990]

Why is the capital reserve portion of member dues not allowed to be deducted from rental income? Sorry if this is a very elementary question, but I've seen it stated repeatedly on DisBoards and never seen an explanation of why.

Imagine if you own a "real" vacation home, as opposed to DVC. If you rent it out, things like repairs and cleaning are deductible in calculating your profit for income tax; these are akin to DVC "operating cost". But if (for example) you buy a new furnace for the house, that is considered a capital improvement and is not deductible, but it does increase your basis to reduce any capital gains tax if and when you eventually sell. And this kind of expense is analogous to the capital reserve portion of the DVC dues.

 

[SheSingsAlong]

Imagine if you own a "real" vacation home, as opposed to DVC. If you rent it out, things like repairs and cleaning are deductible in calculating your profit for income tax; these are akin to DVC "operating cost". But if (for example) you buy a new furnace for the house, that is considered a capital improvement and is not deductible, but it does increase your basis to reduce any capital gains tax if and when you eventually sell. And this kind of expense is analogous to the capital reserve portion of the DVC dues.

This does make sense - thank you!

 

[Nursemanit]

All of the above reasons are why I have to laugh as I have been getting offers from the board sponsor to rent my points for $12 a point. I would rather give them away to a friend for anything less than $16-18 depending on the contract.

 

[sndral]

Technically, if that makes them exceed the annual gift allowance to you, yes, they can. Now, the gift exclusion for 2022 is $17k, so it’s unlikely that your family is giving you $17k worth of value. And that's per person/per person - I can give my son $17k, my husband can give my son $17k, and then we can both gift our youngest $17k. Your relative would be having to transfer a lot of value in gifts before it would trigger - but if you had a sibling who was really wealthy and helped you out with gifts - monetary or otherwise, dinner at Disney could turn out to be a taxable event.

I’m not an accountant, but have researched the whole gift tax thing & my understanding is that if your wealthy relative gave you more than $16,000 (2022) or $17,000 (2023) they’d have to report it via form 709, & it would count against their 12.06 million (2022)/12.92 million (2023) estate tax exemption, but neither they or you would owe income taxes on the gift.

 

[crisi]

I’m not an accountant, but have researched the whole gift tax thing & my understanding is that if your wealthy relative gave you more than $16,000 (2022) or $17,000 (2023) they’d have to report it via form 709, & it would count against their 12.06 million (2022)/12.92 million (2023) estate tax exemption, but neither they or you would owe income taxes on the gift.

I am an accountant, but don't do personal taxes other than my own, and that is my understanding as well. $17,000 a year, but 12 Million lifetime, including inheritance.

 

[crisi]

I'm a first time DVC buyer and I'm keeping myself occupied by researching the ins and outs of renting points (and the tax implications of doing so). My personal taxes have rarely been very complicated so I don't have a super deep understanding of tax law.


Why is the capital reserve portion of member dues not allowed to be deducted from rental income? Sorry if this is a very elementary question, but I've seen it stated repeatedly on DisBoards and never seen an explanation of why.


So it seems this is saying that because the capital reserve portion of member dues is so small, it probably won't make a meaningful difference in the taxable rental income on something like 100 points whether you include or exclude capital reserve as a deduction, yes?

Yep, its so tiny that it wouldn't make a difference, most people aren't make or break with an extra $20 in deductions - i.e. it isn't "material." But technically, you should remove the capital portion of your dues and only use maintenance for the year. That's because when you deduct the expenses you paid, capital is spread over many years - you can't tie it to "last year I rented and therefore that capital gets deducted" because the capital is going to a new roof six years from now and has nothing to do with that rental. And if you start ignoring a lot of those little things because they aren't material, you can get into trouble should you ever get audited.

 

[crisi]

All of the above reasons are why I have to laugh as I have been getting offers from the board sponsor to rent my points for $12 a point. I would rather give them away to a friend for anything less than $16-18 depending on the contract.

Even at $18, it really isn't worth the time other than to recoup dues - which is worth the time through a broker. If I rent my 150 points at $12 I make about $525 after deducting my dues. If I rent at $18, I make a whole $1425. An extra $900 before taxes. Big whoop - not worth my time to find a renter and deal with the hassle for me. But we bought 20 years ago for $63 a point, so I got my "ROI" years ago on the purchase price - and I really don't like hassle. I'd just really want to recoup dues on points not used.

 

[Nursemanit]

Even at $18, it really isn't worth the time other than to recoup dues - which is worth the time through a broker. If I rent my 150 points at $12 I make about $525 after deducting my dues. If I rent at $18, I make a whole $1425. An extra $900 before taxes. Big whoop - not worth my time to find a renter and deal with the hassle for me. But we bought 20 years ago for $63 a point, so I got my "ROI" years ago on the purchase price - and I really don't like hassle. I'd just really want to recoup dues on points not used.

I would even bank my points and rent from someone else @ 12 a point - that is less than $150 a night for Boardwalk.

 

[gharter]

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

That's what our accountant told us as well. We got a 1099-K, easy to add to the taxes (not necessarily in a good way)

 

[TAX GUY]

I'd suggest anyone renting points or considering it, to speak to professional. I'd also suggest many that are providing advice here do the same.... there's soooooo much incorrect and inaccurate info in this thread.

 

[DonMacGregor]

I'd suggest anyone renting points or considering it, to speak to professional. I'd also suggest many that are providing advice here do the same.... there's soooooo much incorrect and inaccurate info in this thread.

The C7 Z06 man speaks truth...

 

[TAX GUY]

The C7 Z06 man speaks truth...

Close, it's actually a Grand Sport