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Tax writeoff on Timeshare rentals

pspworkid1203

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Aloha,
if we give our timeshare on rental, can we get tax writeoff on the maintenance fees.

Thanks
 

ecwinch

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Aloha,
if we give our timeshare on rental, can we get tax writeoff on the maintenance fees.

Thanks
As long as you declare the associated rental income.
 

uscav8r

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Aloha,
if we give our timeshare on rental, can we get tax writeoff on the maintenance fees.

Thanks

You can offset any rental income with the underlying maintenance fees for the points used as an expense only. You CANNOT “write off” any losses since you do not meet the active participation requirement (since the resorts are actively managed by someone other than you).

So the best you can do is net zero, or pay some taxes on the profit.

There is a pretty good explanation of the tax implications on the TUG2.net site (not the TUGBBS forum).

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ecwinch

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As with anything regarding taxes, the grey area is fairly wide.
 

T_R_Oglodyte

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Aloha,
if we give our timeshare on rental, can we get tax writeoff on the maintenance fees.

Thanks
In your post I highlighted the word "give" - with notion that perhaps you are "giving away" the week to someone else to rent or as a charity donation.

If that is the situation, the tax rules are crystal clear - you cannot write off the maintenance fees, nor make any claim for a charitable contribution.

When it comes to personal property, a deduction may be claimed only for donation of ownership of property, not for use of property. So if you donate your ownership of a timeshare, you may deduct the "fair market value" of that property. But if you donate the use of the property, in a charity auction for example, that donation will almost never be deductible.
 

bogey21

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I'm no tax professional so I am only telling you what I would do. I'm assuming you are talking one or two Weeks that you own and normally use yourself one way of another. I'm also assuming that on a one time basis you rented your Week(s). If so, if I didn't get a 1099 showing the rental income, I'd totally ignore the transaction on my taxes. If I received a 1099, I'd prepare a Schedule E showing the income from the 1099 and the MF and taxes as expenses. My guess is that the impact on your taxes will be so small the IRS will not pay any attention to it...

George
 
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OldGuy

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Assuming by "write-off" you mean you would like to take a loss, here's why I say, "NO."

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.

I stopped doing it years ago when I found that. It was a piddly amount anyway.
 
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pspworkid1203

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Thanks for all the responses. I will quote a situation. I pay 780$ maintenance fees yearly at royal sea cliff property. Suppose I rent out a week for say $1200, can I get a writeoff for the 780$ maintenance fee and have to pay tax only on the remaining 420$?
 

uscav8r

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Thanks for all the responses. I will quote a situation. I pay 780$ maintenance fees yearly at royal sea cliff property. Suppose I rent out a week for say $1200, can I get a writeoff for the 780$ maintenance fee and have to pay tax only on the remaining 420$?

You are using slang terminology which introduces confusion.

In your case, you identify the $780 as an EXPENSE on a Schedule E, which offsets the rental INCOME of $1200 on that same Schedule E.

So, yes, as long as the $780 is the MF for that single week, then you would report net income of $420 on Schedule E.

A “write off” implies a net LOSS that can offset ordinary income.

Say you rented the week for $700 and had the same $780 MF. In this case, you would have an actual loss of $80. However, you cannot use this to offset ordinary income (ie your salary) and take a tax loss due to the active participation requirement I mentioned earlier. OldGuy also noted another issue with vacation rental tax losses as well. You would be limited to a net $0 on the Schedule E.


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OldGuy

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Assuming by "write-off" you mean you would like to take a loss, here's why I say, "NO."

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.

I stopped doing it years ago when I found that. It was a piddly amount anyway.

To me it is inconsistent that you cannot take a loss for a rental of seven days or less, but you do have to claim it as income.

It's either a rental or not a rental, and if it's not a rental, you should not have to show it as income if you are not allowed to show a loss.

Why should the length of the rental have anything to do with whether you had a loss or not?
 

SmithOp

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To me it is inconsistent that you cannot take a loss for a rental of seven days or less, but you do have to claim it as income.

It's either a rental or not a rental, and if it's not a rental, you should not have to show it as income if you are not allowed to show a loss.

Why should the length of the rental have anything to do with whether you had a loss or not?

Its explained here by a CPA.

https://tug2.net/timeshare_advice/income_taxes_and_timeshares_from_an_accountant.html


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ecwinch

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But that article seems to say that you can deduct the rental loss against other forms of passive activity income - unless my public school education is failing me again.

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.
 

uscav8r

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But that article seems to say that you can deduct the rental loss against other forms of passive activity income - unless my public school education is failing me again.

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.

It’s because you are ignoring the section regarding short term rentals. In this case, NO loss is attributable to that property, so there is no passive activity loss to offset other passive income.

I will provide two illustrative cases. Case A is for someone who owns two normal rental properties (in other words, the rental periods exceed the 7 day threshold). Case B is for someone who has a timeshare (short-term) rental with a net loss and another rental (it doesn’t matter if it is short or long term) with a net profit.

Case A:
— Property 1 has $2000 income and $3000 expenses for a net loss of $1000
— Property 2 has $2000 income but only $1250 in expenses for a net income of $750
— Schedule E adds up the value for both properties, which results in an overall net loss of $250.
— Normally this passive activity loss would have to be held over until the sale of one or more properties, but if the filer has “active participation” in the management and upkeep of the properties, they can actually use up to $25,000 in passive activity losses to offset regular income (i.e., salary, interest income, etc.).

Case B:
— Let’s use the exact same numbers, but change Property 1 to a short term rental
— Property 1 has $2000 income and $3000 expenses for a net loss of $1000. However, because this is a short term rental, the loss is disallowed (zeroed out).
— Property 2 has $2000 income but only $1250 in expenses for a net income of $750
— Schedule E adds up the value for both properties, which results in an overall net income of $750.

Another twist:
There is an additional issue to consider with timeshares. Let’s say the rentals were all long-term. Remember in Case A when I said someone with active participation could use the net passive activity loss to offset regular income? If you rent out a timeshare, by definition you cannot be an active participant since the timeshare management company is in charge of the day-to-day operations and maintenance of the property. So you would be stuck with the passive activity loss carry-over.





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ecwinch

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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.
 

uscav8r

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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.

As a person who rented out properties for over 23 years, I have just a little experience in this area. There are two exceptions that allow real estate passive activity losses to offset regular income. The first is to be a real estate professional (who spends a minimum of 750 hours per year on real estate activities), which allows almost unlimited passive activity loss offset. This won’t apply to most people, however.

The second way is to be an active participant in the management and decision-making for the rental. Such a person can use up to $25k in passive activity losses to offset regular income in the same year. Any excess must follow the carry-over rules.

Someone who falls into neither category is stuck with the carry-over rules you cited.

Of course, the limitations previously mentioned regarding short-term rentals of timeshares still apply. But this part of the discussion only deals with how to handle the overall Schedule E passive activity loss after accounting for those issues.


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ecwinch

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If I have $100 loss from passive rental activity, are you saying I cannot offset that against other passive activity income? The article clearly states you cannot offset regular income.

So we should remove or rewrite the section underlined in my previous post?
 

uscav8r

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If I have $100 loss from passive rental activity, are you saying I cannot offset that against other passive activity income? The article clearly states you cannot offset regular income.

So we should remove or rewrite the section underlined in my previous post?

I’m no tax lawyer, but this is my layman’s explanation.

As in many things related to this tax issue, you cannot take piece-parts of the code and make sweeping generalizations. You need to consider the entire code and apply it to a specific situation.

You are mistaking the underlined section as the blanket rule, which is not true in many cases.
I have shown you the two exceptions to the carryover rules that apply to rentals in general.

The underlined section is also true... in a specific context.

Keep in mind the context in which the article was written. It is for rentals of timeshares.

As I have mentioned several times, one of the exceptions above hinges upon “active participation” in the rental. As timeshares have full-time management of the property, you cannot be an active participant, so the exception does not apply. Therefore, you have to abide by the carry-over rules.

Someone should NOT use this advice if they were to rent out a beach house they owned. In that case, they are likely to be active participants, though they may still fall under the short-term rental case which would disallow any loss in the first place.

See? I told you you have to take the entire code and apply it to a specific situation.




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uscav8r

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If I have $100 loss from passive rental activity, are you saying I cannot offset that against other passive activity income?
It depends. Did you rent out a timeshare or your beach house? Are you an active participant or not? Are you a real estate professional or not? Was it a short-term rental (on average) or a long-term rental?



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uscav8r

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So we should remove or rewrite the section underlined in my previous post?
Actually, it should probably have the specific situation articulated, as well as the fact that this advice may not be applicable in other (i.e., not a timeshare) vacation rental situations.




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ecwinch

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It depends. Did you rent out a timeshare or your beach house? Are you an active participant or not? Are you a real estate professional?



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Timeshare, not an active participant, and no.
 

uscav8r

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Timeshare, not an active participant, and no.

If the average rental period was 7 days or less, then you could claim no loss at all.

If the average rental period exceeded 7 days, then you would have to carry-over the passive activity loss to apply against future passive income.


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ecwinch

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Seems like ExtraHolidays would have published something on this topic.
 

ecwinch

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So if have a loss from a LP, I cannot offset that against the profit from my timeshare rental? Both being passive activity.
 
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