Purchase DVC...for future investment OR Identified specific QTY which reduces Financial impact

[CanadaDisney05]

This does not apply to time shares.

https://www.redweek.com/resources/articles/tax-aspects-renting-timeshare

A: In almost every situation, you are required to report the income on your tax return. The salesperson was undoubtedly referring to the "vacation home" tax rules, which allow you to exclude the rental income if you rent the "home" out for less than 15 days in the year. However, that rule would treat your timeshare as a vacation home for the year only if you and friends and relatives personally use it for at least 15 days during the year in addition to the days it is rented.

If you don't meet both of the 15-day rules (and some other rules that are less likely to apply to timeshares), the income is taxable, just as other income you receive is. In order to have a chance at meeting the rules, an individual must own a minimum of three weeks at a single resort, with at least 15 days used for personal purposes.

 

[_auroraborealis_]

https://www.redweek.com/resources/articles/tax-aspects-renting-timeshare

DVC does not deal in "weeks." So I would use caution taking unqualified advice about it from Redweek or another internet site dealing in timeshares.

 

[CanadaDisney05]

DVC does not deal in "weeks." So I would use caution taking unqualified advice about it from Redweek or another internet site dealing in timeshares.

Someone above mentioned special rules about timeshares, and I simply illustrated that the rule they are referring to does not generally apply in this situation. The reason is because you must use the property for more than 15 days personally and less than 15 days rented in a year. Pretty rare circumstance for a DVC owner.

You also pay tax on the rental income. The buy-in cost is not deductible.

I'm pretty sure the buy in cost would be considered a lease (fair warning, ive never read a DVC contract). If it is, the prorated portion of the purchase price should be deductible against rental income.

Ex) 100 point contract @ $110 per point = $11,000. 23 years left on the contract when purchased = 2300 total points purchased.

For every point you rent, you can deduct $4.78 (11,000/2300). Add in that year's annual maintenance fee to your deductions

 

[miTnosnhoJ]

https://www.redweek.com/resources/articles/tax-aspects-renting-timeshare

The Augusta Rule, which exempts the people in Augusta GA form having to report rental income on their primary residence if they rent it out less than 15 days, say, for the Masters Tournament, does not apply to timeshares. I think we are saying the same thing. Sorry I was not clear.

 

[CanadaDisney05]

The Augusta Rule, which exempts the people in Augusta GA form having to report rental income on their primary residence if they rent it out less than 15 days, say, for the Masters Tournament, does not apply to timeshares. I think we are saying the same thing. Sorry I was not clear.

I think in general were saying the same thing but to clarify; my understanding is that the reason it does not apply to timeshares is not because they are a timeshare. The reason the vacation home rule doesn't apply to a timeshare is because only in a very rare scenario would a timeshare owner qualify under the 15 day qualification.

I presume the rule would apply to a timeshare if the owner owned 3 weeks, and stayed personally for 15 days, and rented out the other 6.

 

[crisi]

It's actually specifically that they are a timeshare. Timeshare deductions are a huge audit flag and almost never apply. I am a u.s. based accountant. I would never recommend that anyone deduct timeshare rental expenses. The permitted circumstances are narrow, and the likely audit will open you up to every nook and cranny.

 

[jerseyduke]

When are you ever not supposed to report income on your tax return?

I can not opine much to the tax implications of a time share, but I am going to venture that they are not favorable to the time share owner. And I also going to go out on a limb and say they apply to when you own the dwelling, not a portion of it, but I am no expert there.

One thing I have not seen pointed out - It is talked about deprecating the value of the time share down to zero - lets just assume you can do this for the sake of argument - well, eventually it does go down to zero!
A rental property (a house and using the various vacation home rental sites) is going to appreciate! This has to be a much better option from a business point of view. Depreciate an asset that appreciates in value, essentially deferring the taxes (or at least a portion of) on it indefinitely (I think there is a pretty powerful person in the US that does just that - just sayin)


Also to your 2nd point.
You CANNOT buy 400 points and then sell 240 of them.
You can not sell points period. You can only sell a contract. If a contract is 400 points you can sell all 400, or hold all 400. There is no other option there as to selling. You can RENT a portion of your points out. You cant sell a portion.

 

[CanadaDisney05]

It's actually specifically that they are a timeshare. Timeshare deductions are a huge audit flag and almost never apply. I am a u.s. based accountant. I would never recommend that anyone deduct timeshare rental expenses. The permitted circumstances are narrow, and the likely audit will open you up to every nook and cranny.

Can you refer me to where in the IRS tax code it states that timeshares cannot be exempt from reporting rental income under the "vacation home" rule? I've been searching high and low but have not come across this.

On a separate note, I'd assume in the scenario where the OP purchased a timeshare with the sole purpose of renting it out for the next 5 to 10 years, this would be considered business activity and would have no restrictions on deducting appropriate expenses?

 

[CanadaDisney05]

When are you ever not supposed to report income on your tax return?

There seems to be a specific rule for "vacation homes" (which has a very specific definition) where you don't have to report income.

 

[jerseyduke]

There seems to be a specific rule for "vacation homes" (which has a very specific definition) where you don't have to report income.

Yes - when its negligible and not worth their time! Otherwise, the IRS wants it.

Also, if you do not have to claim it as income, you sure as hell aren't going to be able to deduct expenses associated to it!

 

[CanadaDisney05]

Yes - when its negligible and not worth their time! Otherwise, the IRS wants it.

Also, if you do not have to claim it as income, you sure as hell aren't going to be able to deduct expenses associated to it!

There is a specific "vacation home" rule from the IRS that allows you to not report rental income. Not reporting this income in this specific scenario would be considered legit. No, you would not get to deduct expenses if your not claiming the income.

https://www.irs.gov/publications/p527#en_US_2018_publink1000285475

Used as a home but rented less than 15 days.

If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function isn’t considered to be rental and it shouldn’t be reported on Schedule E (Form 1040). You aren’t required to report the rental income and rental expenses from this activity. The expenses, including mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses.

https://www.irs.gov/publications/p527#en_US_2018_publink1000285456

You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of:

1. 14 days, or
2. 10% of the total days it is rented to others at a fair rental price.

 

[jerseyduke]

There is a specific "vacation home" rule from the IRS that allows you to not report rental income. Not reporting this income in this specific scenario would be considered legit. No, you would not get to deduct expenses if your not claiming the income.

Exactly. You can not deduct the expenses. But if you own a home and rent it out the same number of days (less than 15) you still get to write off the interest on the mortgage, property taxes etc, etc.
And the value of your asset (should) appreciate.

If you want to get into the vacation rental business I do not think using a time share is the way to go about it.

The tax benefits of renting out a time share just aren't there.

 

[crisi]

Can you refer me to where in the IRS tax code it states that timeshares cannot be exempt from reporting rental income under the "vacation home" rule? I've been searching high and low but have not come across this.

On a separate note, I'd assume in the scenario where the OP purchased a timeshare with the sole purpose of renting it out for the next 5 to 10 years, this would be considered business activity and would have no restrictions on deducting appropriate expenses?

Nope. I know it's a letter, but I'm on vacation without access to IRS letters

 

[crisi]

Nope. I know it's a letter, but I'm on vacation without access to IRS letters

Oh, and no on the second as well. The IRS is highly suspicious of timeshare as business.

 

[crisi]

Timeshare are specifically removed from the definition of vacation homes. So any code you see regarding vacation homes does not necessarily apply ( and probably doesn't)

 

[CanadaDisney05]

The tax benefits of renting out a time share just aren't there.

I agree.

 

[CanadaDisney05]

Nope. I know it's a letter, but I'm on vacation without access to IRS letters

Have a fun vacation. If you end up finding it at a later time, I'd be interested in reading it. I've been search every where for IRS information regarding timeshare rentals but cannot find anything specific.

 

[mustinjourney]

The title may not make sense; but here is what I am trying to accomplish:

1. Has anyone purchased a DVC membership (direct or resale) with the goal of not utilizing it until the purchase amount or monthly payment has been paid off (obviously still have MF). How was that experience? Was your initial calculation of pay-off close? Pros & cons to this approach

OR

2. Have you calculated the # of points needed to be able to sell XXX amount of points to pay for your down payment or financial monthly dues; but still have enough points left over to go on (1) trip a year (i.e. purchased 300 points @ $90/pp; financed monthly pmt around $400. Which means I can sell 240 points to get as much $$$ as I can yearly but still have a studio for 4-5 days each year). In this case, if I was able to move 240 points at $17/pp I would recoup roughly $4,100. My total yearly cost for my financial impact would be roughly $700 (not including MF)

I hope that make sense. Trying to generate Pro's & Cons of thinking this way

Thanks

So you'd be paying roughly $4800 per year to have access to 300 points. You're paying $16 per point per year during the life of the loan -- plus you still have maintenance fees. How long is this loan for? The finance costs for these loans are so high, I just don't see the value there.

Other thoughts -- you're assuming $17 net revenue for renting. What property are you buying at $90 per point and expect to NET $17 per point. SSR/BRV/OKW aren't going to get anywhere close to that for your NET profit. If you use a broker, they take a cut. Don't forget -- rental income is technically income -- so technically speaking you are supposed to give the government their kickback as well.

This is a decent idea if the interest rate on the loan is around 2-3% and you found a really good deal on a loaded contract (and the loan was for a relatively short time) -- but it's likely a bad financial decision. You're essentially buying a bigger house and planning on having roommates -- but in doing so, you're stretching your budget more than you should and taking on way more debt. While renting points might be easy for now -- you never know what the future will hold. I've seen reports from seasoned renters the last year or so in which they are saying it is getting harder and harder to rent their points out. Not sure if supply is way up, thereby creating more competition or if demand is somewhat down. My guess is supply in the rental market has gone up -- but with increased supply comes lower prices if demand stays flat.

Wouldn't you be better off just renting the points for stays?

 

[crisi]

Have a fun vacation. If you end up finding it at a later time, I'd be interested in reading it. I've been search every where for IRS information regarding timeshare rentals but cannot find anything specific.

It's subscription unless you go to a tax library. The devil in these things is in the details, and the detail on what the IRS actually allows is in letters

 

[_auroraborealis_]

I'm going to reiterate, though:

The contract you have with Disney specifically states that your timeshare is not a vacation home and does not have any residency option.

The contract you have with Disney specifically requires that your use be primarily personal, and that business use (like renting) is incidental.