How Taxes Can Impact You When Selling a Timeshare.....
by Richard Marquette, Editor of Vacation-Times.org
One of the questions I am commonly asked at timeshare owner groups and industry meetings is how selling a timeshare impacts the seller in regards to both state and federal income taxes. The first advice I always provide is simple- Speak with your CPA or tax preparer to ensure you have the most accurate information and receive advice specific to your situation. 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. Every timeshare owner should expect their vacation ownership to decline in monetary value, in much the same way that other comparable luxury items such as an automobile or boat tend to depreciate over the years. 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!
Financial loss from the sale of a timeshare is usually not 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. If audited, you will need to be able to provide documentation to support this claim such as rental advertising expenses and 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 you ownership can be classified as solely for business purposes, you should use the following guideline to properly determine the expenses of your purchase and ownership at the time of a sale. 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, contact your resort management company to request a copy of the annual budget for the timeshare regime. When considering annual expenses to be used as a deduction from your rental proceeds, 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.
Finally, don't forget that your timeshare may be subject to both state and federal tax 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. Ask your closing agent if there are any withholding requirements that may apply to you sale such as federal withholding (FIRPTA) or possibly state withholding (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.
One of the questions I am commonly asked at timeshare owner groups and industry meetings is how selling a timeshare impacts the seller in regards to both state and federal income taxes. The first advice I always provide is simple- Speak with your CPA or tax preparer to ensure you have the most accurate information and receive advice specific to your situation. 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. Every timeshare owner should expect their vacation ownership to decline in monetary value, in much the same way that other comparable luxury items such as an automobile or boat tend to depreciate over the years. 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!
Financial loss from the sale of a timeshare is usually not 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. If audited, you will need to be able to provide documentation to support this claim such as rental advertising expenses and 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 you ownership can be classified as solely for business purposes, you should use the following guideline to properly determine the expenses of your purchase and ownership at the time of a sale. 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, contact your resort management company to request a copy of the annual budget for the timeshare regime. When considering annual expenses to be used as a deduction from your rental proceeds, 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.
Finally, don't forget that your timeshare may be subject to both state and federal tax 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. Ask your closing agent if there are any withholding requirements that may apply to you sale such as federal withholding (FIRPTA) or possibly state withholding (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.