Talk About Taxes Before Selling A Timeshare
When I speak at industry events, timeshare owners will often ask me to explain howselling or renting a timeshare condo needs to be reported on both state and federal income taxes. I always provide them with the same scripted answer- Discuss it with your accountant or legal counsel to ensure you have up to date information. The following article should not be considered as legal advice, but rather as general information you can consider when you discuss your sale with your counsel or accountant.
The vast majority of timeshares are sold on the secondary market at a loss! It is extremely rare that a timeshare owner sells a timeshare for more than they originally paid, even if that timeshare was purchased as a resale on the secondary market. The first rule of timeshare ownership is that timeshares generally do not appreciate over time. All timeshare owners should expect the value of their timeshares to decline over the years, just like a car or a boat will devalue over time. Often, the only true gauge of a timeshares value lies in the usage and enjoyment received, and in the photo albums created from years of fantastic vacations!
The loss you take when selling a timeshare is not normally deductible. Tax laws in the United States consider a timeshare to be a specialized form of real estate that is classified in most cases as a personal asset. Your tax preparer should think of your timeshare in much the same way as they do your automobile. When you sell a vehicle that you have owned for personal use and enjoyment you cannot claim a loss on your income taxes. However, if your vehicle is owned and used entirely for business purposes- then there can be tax benefits. If you originally purchased your timeshare for business purposes such as for employee usage, client gifting, or as a rental property investment and can prove that you have regularly used it for that purpose, you should be able to claim a loss as a business expense or investment. You will want to be able to prove your claim by being able to provide copies of advertising expenses as well as rental contracts. If you purchased the timeshare for personal usage and decide later to use it for business purposes, you may want to consider transferring ownership to your existing business or create a LLC or other legal entity to hold title- and start with a clean slate. Your legal counsel may advise you to obtain an appraisal or comparative market analysis at the time of transfer to determine what the fair market value is for the timeshare.
If your timeshare is used solely for business purposes, you will calculate your expenses of ownership. You should combine your purchase price, any closing costs you paid, any broker transaction or administrative fees you paid, and any portion of the annual fees you have paid that were earmarked for replacements or for capital reserves. Fees paid toward operating expenses should not be used. Your maintenance fee bill should provide you with a breakdown of the annual assessment. if it does not break down the payment, you can try calling your resort manager to ask for a copy of the overall budget for the timeshare.. When considering annual expenses to be used as a deduction from renting your timeshare, you should use the full amount of annual maintenance fees and taxes you paid in that year, as well as any advertising expenses and brokerage fees you incurred. Your selling expenses should include any advertising fees, brokerage commissions, and any closing costs you paid towards the sale of your timeshare.
Remember that your timeshare sale would be subject to both federal and state law and requirements. State laws may apply both in your legal state of residence as well as the state where the timeshare resort is located. Always choose a respected timeshare closing agent who is experienced with your resort and understands the specific state requirements involved with the transfer of ownership. Find out from the title company if there are any state or federal withholding requirements that could impact your sale such as FIRPTA or HARPTA. Again- you should always consult with your counsel or tax preparer before, during, and after the sale of your timeshare. Sound financial advice can help you to understand and properly report your timeshare sale.
by: Richard Marquette