taxes on week rented out

[Skitter]

If you rent a week out, how do you calculate your taxable income?
I am on points system.
Do you subtract the amount paid in maintenance fees as an expense?
Do you subtract any advertising fees?

 

[vacationtime1]

If you rent a week out, how do you calculate your taxable income?
I am on points system.
Do you subtract the amount paid in maintenance fees as an expense?
Do you subtract any advertising fees?

MF's and advertising are clearly deductible against that income.

I would not hesitate to deduct anything else attributable to the rental or to the underlying cost of ownership: lockoff charges, extra housekeeping, a reasonable portion of Club fees, Paypal/credit card charges attributable to the receipt of rent, etc.

 

[geist1223]

Remember for Federal Tax purposes you have to show a profit every couple years otherwise it is considered a Hobby. You have to be in the rental as a business.

 

[rapmarks]

I

Remember for Federal Tax purposes you have to show a profit every couple years otherwise it is considered a Hobby. You have to be in the rental as a business.

don’t understand this. What is the repercussion if you don’t show a profit. I haven’t shown a profit

 

[vacationtime1]

If there is no profit, there is nothing to report.

 

[andre10056]

Depending on how you've rented your timeshare, you might receive a statement from the middleman (for example, Redweek in a verified and protected listing in which they do the booking) which will state what amount of revenues you earned. The IRS doesn't know what expenses may be attributable to your generation of those revenues and will naturally assume it's all taxable income. Assuming your other income plus your rental income will STILL be below the taxable income threshold, you need do nothing. But...if your other income plus your rental income will EXCEED the taxable income threshold such that you might theoretically owe taxes, you better submit your expenses attributable to those rental revenues.

Fees charged you by the middleman, the maintenance fees paid for the week you rented (it's easy to determine that if you own a week and rented just that week but, otherwise, your allocation must make sense), the cost of the ad, the cost of your resort's guest certificate, if any, the cost of any midweek cleaning if applicable, etc., etc., etc.

That's why some people may have preferred Redweek DIY listings back in the "old days" when such were allowed since there was NO (none, nada) record of your generating even a dime in revenues.

The next question is, "What if you lose money renting out your timeshare?" What if your expenses associated with the timeshare rental EXCEED your rental income? I would think that's a legitimate net loss that should similarly be reported. At least, I certainly would.

 

[sponger76]

The next question is, "What if you lose money renting out your timeshare?" What if your expenses associated with the timeshare rental EXCEED your rental income? I would think that's a legitimate net loss that should similarly be reported. At least, I certainly would.

That might be bad advice that could get someone into trouble. From what I understand, net losses from renting a timeshare that is owned primarily for personal use or use by friends/family is generally considered a personal loss and is not deductible.

If you solely own the timeshare as a rental business and don't every use it personally, that would be different. But then of course you are breaking most timeshare systems' prohibition on commercial renting.

 

[andre10056]

That might be bad advice that could get someone into trouble. From what I understand, net losses from renting a timeshare that is owned primarily for personal use or use by friends/family is generally considered a personal loss and is not deductible.

If you solely own the timeshare as a rental business and don't every use it personally, that would be different. But then of course you are breaking most timeshare systems' prohibition on commercial renting.

Well. It would be an interesting question to ask of IRS personnel (and I'd call multiple times because, depending on who you talk to, I'd bet you'd get different answers). I'm not sure what the significance of your having used it "for personal use" has to do with anything. If last year I lived in a condo that I own but I've since vacated, and I now attempt to rent it out but ultimately do so at a loss, I can't deduct the loss? In any case, I don't see why you'd get in trouble by virtue of not knowing that, even if you incur a loss, you can't deduct it because of...whatever. Seems like no one could expect such a counter-intuitive result.

If I've used it in the past for personal use, would I also not have to pay taxes on a net gain?

 

[sponger76]

Well. It would be an interesting question to ask of IRS personnel (and I'd call multiple times because, depending on who you talk to, I'd bet you'd get different answers). I'm not sure what the significance of your having used it "for personal use" has to do with anything. If last year I lived in a condo that I own but I've since vacated, and I now attempt to rent it out but ultimately do so at a loss, I can't deduct the loss? In any case, I don't see why you'd get in trouble by virtue of not knowing that, even if you incur a loss, you can't deduct it because of...whatever. Seems like no one could expect such a counter-intuitive result.

If I've used it in the past for personal use, would I also not have to pay taxes on a net gain?

If you actually bother to do any research instead of just spouting off your opinion of how you *feel* it should work, you would see a TON of information about how personal use does make a difference for whether or not a loss from renting a timeshare does indeed make a difference. In addition, renting out a house/condo that you own year-round instead of just a week is a bit different. And yes, even if you have used the timexshare for personal uses, the IRS still considers any profit to be taxable income. You can deduct expenses (MFs, listing/advertising, etc) against the amount you get for the rental to reduce the taxable income to only reflect actual profit, you just can't deduct more than what you got for the rental as a net loss.

 

[andre10056]

If you actually bother to do any research instead of just spouting off your opinion of how you *think* it should work, you would see a TON of information about how personal use does make a difference for whether or not a loss from renting a timeshare does indeed make a difference. In addition, renting out a house/condo that you own year-round instead of just a week is a bit different. And yes, even if you have used the timexshare for personal uses, the IRS still considers any profit to be taxable income. You can deduct expenses (MFs, listing/advertising, etc) against the amount you get for the rental to reduce the taxable income to only reflect actual profit, you just can't deduct more than what you got for the rental as a net loss.

So you have to pay taxes on any profit you make but you can't deduct any losses? And it's the same timeshare. Same personal use. Same everything. Seems to me very questionable since it makes no sense whatsoever.

But, like I say, I'd like to ask that question of IRS personnel. I'd like them to explain the "TON of information" out there "about how personal use does make a difference for whether or not a loss from renting a timeshare does indeed make a difference". I, personally, think there's no way the tax code works how the alleged "ton of information" indicates that it does, but I may be surprised.

 

[sponger76]

So you have to pay taxes on any profit you make but you can't deduct any losses? And it's the same timeshare. Same personal use. Same everything. Seems to me very questionable since it makes no sense whatsoever.

That's the government for you.

But, like I say, I'd like to ask that question of IRS personnel. I'd like them to explain the "TON of information" out there "about how personal use does make a difference for whether or not a loss from renting a timeshare does indeed make a difference". I, personally, think there's no way the tax code works how the alleged "ton of information" indicates that it does, but I may be surprised.

Well, talk to a few tax experts (I am not one, but I have asked some for advice on these issues because at one point I toyed with the idea of renting out timeshares) and you will find that yes, the tax code, or at least the IRS interpretation of it, does indeed work that way. Whenever you make money, no matter how, Uncle Sam wants his cut, but when you lose money, he unequally limits what you can declare as a reduction in income.

It may seem crazy and overly complicated (and it is), but that is why tax lawyers and accountants such a large industry. If it were simple and made perfect sense they wouldn't have those jobs.

 

[rapmarks]

When you sell your primary home, you do not get a deduction if you lost money
When you list rental income from a timeshare, you subtract expenses and you fill out a form stating how many days you used it for personal use and how many for rentals, so yes it does matter

 

[dioxide45]

If you actually bother to do any research instead of just spouting off your opinion of how you *feel* it should work, you would see a TON of information about how personal use does make a difference for whether or not a loss from renting a timeshare does indeed make a difference. In addition, renting out a house/condo that you own year-round instead of just a week is a bit different. And yes, even if you have used the timexshare for personal uses, the IRS still considers any profit to be taxable income. You can deduct expenses (MFs, listing/advertising, etc) against the amount you get for the rental to reduce the taxable income to only reflect actual profit, you just can't deduct more than what you got for the rental as a net loss.

I suspect you create a loss on the timeshare rental, but you can't use that loss to offset other personal income.

 

[rapmarks]

I suspect you create a loss on the timeshare rental, but you can't use that loss to offset other personal income.

Correct

 

[geist1223]

If there is no profit, there is nothing to report.

Wrong. Any money taken in is reportable and taxable. Whether tax is owed is a different issue.

 

[andre10056]

When you sell your primary home, you do not get a deduction if you lost money
When you list rental income from a timeshare, you subtract expenses and you fill out a form stating how many days you used it for personal use and how many for rentals, so yes it does matter

As with any investment (stocks, bonds, real estate, gold ingots, etc.) you sure as heck CAN and most certainly DO take as a reduction in your overall income your long term or short term capital loss.

But if it's your "primary home", and I might add primary single family home, and therefore not regarded as an investment, perhaps the rule might be different.

With a timeshare, if you rent this year's week (i.e., 7 nights) out, you'd have 7 days rental use and 0 days personal use which suggests that this year's use was 100% rental.

 

[andre10056]

That's the government for you.

Well, talk to a few tax experts (I am not one, but I have asked some for advice on these issues because at one point I toyed with the idea of renting out timeshares) and you will find that yes, the tax code, or at least the IRS interpretation of it, does indeed work that way. Whenever you make money, no matter how, Uncle Sam wants his cut, but when you lose money, he unequally limits what you can declare as a reduction in income.

It may seem crazy and overly complicated (and it is), but that is why tax lawyers and accountants such a large industry. If it were simple and made perfect sense they wouldn't have those jobs.

The limitations are usually dollar amount limitations (you can't have more than x amount of dollars capital loss that you can take this year). It usually has nothing to do with some central authority somehow determining it's personal use or rental use (i.e., the alleged nature of the loss rather than the dollar amount of the loss).

But look what you're saying. The world's foremost tax authorities might be able to make that determination. And yet, your starting premise was that someone would "get in trouble" for taking such a timeshare rental loss dedustion. You'd get in trouble for reporting an actual loss because these alleged world-renowned tax experts might, after vigorous debate, disagree with your having taken that deduction???!!! I don't think so.

 

[dioxide45]

Tax Aspects of Renting Your Timeshare | RedWeek

www.redweek.com

 

[andre10056]

Tax Aspects of Renting Your Timeshare | RedWeek

www.redweek.com

I like how Redweek says "tax advisors most often miss this" or miss that. By no means a simple area of the tax code.

But here's what Redweek says is the key to this entire issue:

"Q: Suppose my expenses exceed the rental income. Are rental losses permitted as deductions on a tax return?

A: Unfortunately, there is a tax rule that would just about eliminate any chance of your claiming a tax loss for renting your week. A special section of the Income Tax Regulations prohibits treating your loss as a "rental loss" if the average rental period for a particular tenant is seven days or less. Since you would rent your single week for seven days or less, this rule means that your loss is not a rental loss."

But then it gets into passive and active loss so it's still not a slam dunk to me. Most people do a ton of work renting their timeshars.

"Q: So what does that mean to me?

A: Losses from passive activities (where you are not actively managing the business on a daily basis) are generally not deductible. There is an exception that allows deductions of rental losses in certain circumstances. But the rule cited in the preceding paragraph treats your loss as other than a rental loss. Therefore, it is not deductible. Many tax professionals miss this rule.

Q: I'm not sure I believe that my loss is not deductible. Can you tell me where my tax advisor can find this rule?

A: Your tax advisor can review Section 1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations. This regulation is also referred to in IRS Letter Ruling #9505002, which gives an indication of the IRS position on this issue as it relates to timeshares, as discussed above."

I guess we'll have to review Section 1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations and IRS Letter Ruling #9505002 in order to stay out of trouble. Better yet, don't rent out your timeshare at a loss.

 

[VacationForever]

Whether to report it or not often has to do with whether your rentals are trackable. If you rent out to your friends directly and collect money via wire or a check at cost, you are unlikely to be audited by IRS. If you list on redweek and do a rental through them, then your rental is trackable.

 

[SmithOp]

Income Tax Advice for Timeshare sales and rentals provided by a Certified Public Accountant

Get expert guidance on Timeshare resale taxes and rental income reporting. A must-read for Timeshare owners during tax season

tug2.net

 

[andre10056]

Income Tax Advice for Timeshare sales and rentals provided by a Certified Public Accountant

Get expert guidance on Timeshare resale taxes and rental income reporting. A must-read for Timeshare owners during tax season

tug2.net

Interesting addition to our high level tax discussion.

First, it's certainly legitimate to deduct rental expenses to offset rental income. However, with timeshare rentals, there are some significant limitations if you incur a loss.

Assuming that like most timeshare owners, you typically rent to tenants for one week or less at a time, your rentals don't qualify as a "rental" business. A special section of the Income Tax Regulations prohibits treating your loss as a “rental loss” if the average rental period for a particular tenant is seven days or less.

Even most tax advisors are not aware of this rule. Your tax advisor can review §1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations. This regulation is also referred to in IRS Letter Ruling #9505002, which gives an indication of the IRS position on this issue as it relates to timeshares, as discussed above.

So what happens to the loss if it's not treated as a business rental loss? It falls into the passive activity loss rules of §469 of the Internal Revenue Code. Those rules prohibit deducting such losses except against other passive activity income. Such income is narrowly defined and doesn't include, for example, dividends, interest or other investment income.

Thus, you're pretty much stuck with carrying over such losses to use against positive taxable income from your rental activities in future years. You can also deduct any carryover losses related to a rental property in the year you sell that timeshare.

There are a number of complex rules that could change the result here - including the vacation home rules, rules relating to renting to tenants for longer than one week at a time, etc.

So, as I understand the above, and let me first give thanks to Dave M., timeshare owner and CPA and TUG contributor, the loss should be be reported as "passive activity loss"...but it can only be used to offset passive activity income. And why would it be regarded as a passive activity loss despite one potentially doing a ton of work associated with the rental (preparing the ad, paying for the ad, contacting and negotiating with prospective renters, choosing the tenant, arranging for everything including paying for a guest certificate if necessary via Owner Services, agreeing upon a payment methodology, constantly supervising so that things like midweek cleanings are done, making oneself available at 3 AM if necessary so that you're available if need be at check in time, etc., etc., etc.). Merely via IRS definition in that the IRS has declared that timeshare rentals of 7 or less days, if a loss is incurred, will be deemed passive activity loss. Period.

So if you don't have passive activity income from other timeshare rentals that year, you're SOL (sh it outta luck) that year as you have to carry forward the loss into future years. But then it appears you could use it in future years to offset passive activity income from future positive cash flow timeshare rentals. And if you still have unused "carry forwarded" passive activity losses upon sale of the timeshare which was used as a rental timeshare, you might then be able to take as a loss all that's remaining as unused
"carry forwarded" passive losses (although the latter point is not as clear as I would have liked from the above).

A lotta super high level tax deliberations and reporting requirements about what may be a couple hundred dollar rental loss (excuse me, I meant "passive activity loss").

 

[rapmarks]

As with any investment (stocks, bonds, real estate, gold ingots, etc.) you sure as heck CAN and most certainly DO take as a reduction in your overall income your long term or short term capital loss.

But if it's your "primary home", and I might add primary single family home, and therefore not regarded as an investment, perhaps the rule might be different.

With a timeshare, if you rent this year's week (i.e., 7 nights) out, you'd have 7 days rental use and 0 days personal use which suggests that this year's use was 100% rental.

Yes, the rules for primary homes are different, no deduction for loss.
And you are assuming that timeshare ownership and rentals are of 7 days duration, I have no idea the exact numbers, but club or point systems do not limit you to seven day reservations
The IRS tax rules are complicated, but when you use. Tax Assisstance programs, they guide you through the process. In fact last year, I made a profit on one ownership which was seven days and a loss on a different ownership which was flexible time, and I had to pay on the gain, but no deduction for the loss.

People who make their living off their rentals have a whole new set of rules.

 

[andre10056]

Yes, the rules for primary homes are different, no deduction for loss.
And you are assuming that timeshare ownership and rentals are of 7 days duration, I have no idea the exact numbers, but club or point systems do not limit you to seven day reservations
The IRS tax rules are complicated, but when you use. Tax Assisstance programs, they guide you through the process. In fact last year, I made a profit on one ownership which was seven days and a loss on a different ownership which was flexible time, and I had to pay on the gain, but no deduction for the loss.

People who make their living off their rentals have a whole new set of rules.

If the duration of the rental is more than seven days, there would be no Section 1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations and IRS Letter Ruling #9505002 (which state that a 7 day or less rental that results in a loss is, by definition, a passive activity loss) would not come into play so it would be a plain vanilla, ordinary loss that could be taken or included in your that year's taxes.

And, according to Dave M, CPA and timeshare owner and TUG contributor, if the Section 1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations and IRS Letter Ruling #9505002 7 day limitation DOES apply:

...Thus, you're pretty much stuck with carrying over such losses to use against positive taxable income from your rental activities in future years. You can also deduct any carryover losses related to a rental property in the year you sell that timeshare.

So I don't know why he assumed you had to wait till "future years" to offset possible taxable income from rental activities with net timeshare rental losses. It seems clear from what Dave M wrote (...It falls into the passive activity loss rules of §469 of the Internal Revenue Code. Those rules prohibit deducting such losses except against other passive activity income. Such income is narrowly defined and doesn't include, for example, dividends, interest or other investment income....) that you can use those "passive activity" losses anytime you earn positive timeshare rental net income. So perhaps the Tax Assistance program, in denying you the right to deduct any timeshare passive activity losses while simultaneously having you pay taxes on the timeshare passive activity net income you earned MAY BE incorrect. At least according to Dave M and §469 of the Internal Revenue Code.

And Dave M's interpretation of the pertinent tax code provisions makes sense. If you have both timeshare taxable income on one timeshare you rented, and also have a net loss on another timeshare you rented, why couldn't you offset one with the other? The nature of the income and loss, i.e timeshare rental income and loss, i.e., timeshare passive activity income and timeshare passive activity loss, is exactly the same.

 

[Fido Chuckwagon]

Whether to report it or not often has to do with whether your rentals are trackable.

Still a crime to not report this, even if it’s unlikely you will be caught.