posted 05-01-2005 11:58               

quote:

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Originally posted by snelson:
No deduction. See this article in the TUG advice area: Timeshare and Taxes, written by our esteemed Dave McClintock.

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Well, it's not quite flat out as a simple "NO". (Any Capitol One Credit Card holders here?)

The article indicated that if you use the timeshares as a business then all expenses related to the timeshares are taken right off the top of the revenue side. Dave McClintock indicated that ownership of one timeshare unit is more difficult to expense out as opposed to ownership of multiple timeshare at the same resort.

So, if you're going to try and expense everything out, then you better have several ownerships and rent them out every so often and have records of those rentals.

We have about twelve timeshare units, about half of them at one resort location. We rent them out. We give them to clients. We use them ourselves for R&R. Basically, we have all the documentation and supporting evidence that shows we are running this portfolio of timeshares as a business. Some years we net out positive, other years we run a slight loss.

posted 05-01-2005 13:52               

In the meantime, the OP said he owned a timeshare, so in my post there was no need to get into the situations in which a deduction might be possible. With one timeshare, there will never be a situation to claim a loss unless the one timeshare was something such as a one-tenth ownership.

posted 05-01-2005 19:06               

For reasons discussed in this thread, a loss from the rental of timeshares will not be deductible except against gains from similar activities. The legal citations for that limitation are included in that thread.

Also, as Steve states, RonaldCol's discussion is not applicable to the question posed by the OP.

posted 05-01-2005 22:24               

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Originally posted by Dave M:
Steve is correct - in both of his posts.

For reasons discussed in this thread, a loss from the rental of timeshares will not be deductible except against gains from similar activities. The legal citations for that limitation are included in that thread.

Also, as Steve states, RonaldCol's discussion is not applicable to the question posed by the OP.

Further, there are some very strict limitations related to deducting expenses when one or more of the "business" timeshares is used for personal purposes. But that's beyond the scope of this thread.

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Both of you are correct in that the inital poster mentioned he had only ONE timeshare that he was trying to figure out a way to declare a loss on it's future resale. As to whether or not he has more than one timeshare in his ownership, the poster did not say. It was this undeclared possibility I addressed.

However, Dave's post indicated that multiple timeshares, when used as a business, are eligible for business deduction losses if treated as a business. There was one caveat in Dave's post that had some sort of before-after limitations. Off the top of my head I don't recall what it was in particular.

My comments were not intended to make anyone uncomfortable, but merely to point out that under certain circumstances multiple timeshare owners may write off expenses per the information provided by Dave's information file.

posted 05-02-2005 05:43               

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Originally posted by RonaldCol:
However, Dave's post indicated that multiple timeshares, when used as a business, are eligible for business deduction losses if treated as a business.

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If I said that, I certainly didn't intend to. Could you please cite the location and exact wording that I used?

Some of the wording I have used includes,

quote:

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...a loss from the rental of timeshares will not be deductible except against gains from similar activities.

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Similarly,

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[The] rules prohibit deducting such [rental]losses except against other passive activity income.

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posted 05-02-2005 22:09               

quote:
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Originally posted by RonaldCol:
However, Dave's post indicated that multiple timeshares, when used as a business, are eligible for business deduction losses if treated as a business.
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If I said that, I certainly didn't intend to. Could you please cite the location and exact wording that I used?

I cite the first paragraph of the referenced file entitled "Selling Your Timeshare -- Gains & Losses" written by Dave McClintock (CPA):

"Any profit on the sale of your timeshare is taxable. If you sell at a loss, the loss may or may not be deductible. Business losses are deductible, personal losses are not. If you (or friends) use the timeshare, exchange it or trade it for points (e.g., Marriott HGA), a loss on sale will be personal. If you rent the timeshare to others, a loss on sale might be a business loss. However, it’s important to recognize that most occasional renters of timeshares fall under the vacation home rules. Rental under the Vacation Home Rules is not considered rental property, and losses aren’t deductible."

You did not specifically say multiple timeshares, when used as a business, are eligible for business deduction losses if treated as a business. That was my specific conclusion based on your writing that "Business losses are deductible" and "If you rent the timeshare to others, a loss on sale might be a business loss." Notice you were particularly careful to use the words "might."

Elsewhere you write:

"Rental under the Vacation Home Rules is not considered rental property, and losses aren’t deductible ... So, is it ever possible to deduct a loss? It’s not very likely if you own a single timeshare at a resort. It’s possible (not probable) if you own multiple weeks at the same resort. Your best bet is if the timeshare is used in a business, other than rental."

Continuing you write the following:

"If you’re planning on selling at a loss, why not convert the timeshare to rental property to ensure deductibility of the loss?"

It is here where you bring in the Catch 22 scenario, of which I've not reread to completely understand it's implications. Even though you do not provide a specific answer to your question which I presume to be rhetorical, the directly following paragraph ...

"It isn’t that simple. There’s a Catch 22. If you convert property from personal to business use, the basis for determining gain is cost. But, the basis for loss is the lower of cost or fair market value on the date of conversion."

You continue by writing that a loss will be disallowed under certain conditions which convert the personal investment to a a business investment. I am aware of the use of the word "investment" as opposed to rental property.

"In addition, the IRS might disallow the loss if you sell the timeshare before renting it for several consecutive years, since isolated transactions (such as renting a timeshare unit for one week) generally do not convert a personal investment into a business investment for IRS purposes."

The above paragraph leads me to conclude that if you were able to rent out multiple weeks of one timeshare ownership you can then treat it better as a business. Well, if one owned specifically one week, one can only rent out one week, or give out one week for business incentive purposes. If one converted that one week into multiple weeks, then it's a different animal altogether. We have UDI ownerships at Christmas Mountain that permit us as many weeks reservations as we can have with the one timeshare ownership. Additionally, we have converted one week ownerships into vacation club points. With vacation club points we are able to obtain more than one week of timeshare use. (Specifically, our one week at Fairfield Anaheim provides us with 115,000 Fairfield points to use each year within the Fairfield system. We've taken that number of points and reserved up to four studio units at a cost of 28,000 points points per. Each of those studios were then deposited into RCI to obtain four two-bedroom units for our own use or given to others. In this scenario, we've converted one week of timeshare use to four weeks of use.) We are prohibited by RCI bylaws from renting them out, but we do give them out to clients and employees. RCI doesn't prohibit me from giving it to friends and others. It so happens that we give them to our clients. Our cost is prorated and we only claim that prorated cost as expenses. We don't claim the market value of the reserved units.

You continue in your article to write about interest expense and it's deductibility; maintenance fees and property taxes; and donating timeshares to charity. The ideas that followed relate to personal ownership of timeshare units.

Unless I'm mistaken you do delve into the idea of business treatment of timeshare ownership with specific examples of when they can be "possible" or "probable."

posted 05-02-2005 22:28               

I'm, unfortunately, a guy who goes first to a lawyer or another professional and ask the following question: "Please do not tell me what I can NOT do, please tell me what I can do." It's just my personality. I am forever looking and exploring what it is that can enhance my returns, what investments I can make that will create an edge, what convoluted mix of resources will ferment a better brew. Of course, thinking like this has gotten me into more messes than I've ever wanted, but on the other hand, I've managed to turn the timeshare world into a profitable venture, albeit a small amount.

Where timeshare owners have said they hate it because it's a drain of their resources, I've managed to turn timeshares into a profitable venture. Most of you Tuggers have done the same, if not at least increase your utility of your timeshares.

posted 05-03-2005 06:55               

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There is a narrow exception to the rules, but there is no indication here that such exception applies.

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All of the various restrictions on losses that I have discussed here and in the above linked thread apply to renting timeshares. The very narrow exception allows a deduction for losses in limited situations (which I'm not prepared to go into here), if (and only if) the average rental period is longer than one week. (That narrow exception is also discussed in the aforementioned linked thread.)

Thus, if you rent, on average, for one week or less, there is no way to deduct losses. If the average rental is longer than one week, there might be some opportunity to deduct a rental loss, but there are numerous hoops to jump through to claim such deductions.

posted 05-03-2005 12:19               

These discussions on taxes and the interpretations are interesting to me. It runs in my family. I recall a discussion I had with a relative years ago who was just hired by Becton Dickinson to be one of their two international tax managers. The relative had pored over the books of the previous manager and discovered the company had overpaid taxes to the IRS by $23,000,000. He worked up the new numbers and was able to obtain a refund for that amount. It showed up as nonrecurring income in the next accounting period's numbers. My relative had a job for life at Becton Dickinson and the company showed a big jump in "net earnings.". He retired and years later I asked him about this highllght in his corporate career. He told me he was lucky in obtaining the refund. He told me had it been another auditor at the IRS it could have easily gone the other way. He was there at the right time and happened to do the right thing.

posted 05-03-2005 15:07               

However, from §1.469-1T(e)(3)(ii)(A):

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...an activity involving the use of tangible property is not a rental activity for a taxable year if for such taxable year -

(A) The average period of customer use for such property is seven days or less;

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There are other limitations in that and other sections. However, in the context of that one provision, the quoted language means that any loss from such an activity where the rental period averages seven days or less falls into the passive activity loss rules, meaning that generally no deduction for the loss is allowed except against net income from similar types of activities.

Whether you treat it as a business doesn't change that tax treatment.

posted 05-03-2005 18:09               

news:misc.taxes.moderated http://www.board.fairmark.com/board1/board.htm http://www.april15forum.com/

posted 05-05-2005 10:27               

quote:

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Originally posted by Brett5:
just a note about internet help on taxes (timeshare or otherwise) There are discussion groups where tax professionals provide short answers like this board but like DaveM said, many tax professionals may not be aware of all the rules! some of the groups are:

news:misc.taxes.moderated http://www.board.fairmark.com/board1/board.htm http://www.april15forum.com/

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Thank you for the link. Quite a bit of information.