Capital Gain - Hawaii

[myip]

I have a small capital gain on the sale of my Hawaii Timeshare. The gain is only $100 but I was withhold $400 from the sale during the escrow. When filing the income tax, is this consider a long term capital gain or the real estate gain?

 

[Dave M]

Assuming you never rented your week, it's a capital gain, not a gain from the sale of depreciable real estate.

You'll report the gain on schedule D and claim the w/h as a credit against your tax.

 

[Bill4728]

Dave,

Why is it that you have a gain, if you sell for more than you paid, but you can't take a loss?

If it like a car, you buy it in 2002 for $20K then sell in 2005 for $10K you can't take a $10K loss. So, If you bought a car for $5K then sell it the next year for $6K would I have to declare a gain?

 

[Dave M]

That's correct, Bill.

Gains on the sale of any assets are taxable. Losses on the sale of assets used for personal purposes (homes, cars, timeshares, TVs, etc.) are not deductible.

As a differentiation, if you buy a timeshare and use it 100% of the time for rentals, you could deduct the loss upon sale. Similarly, if you use it for rentals for the last few years you own it, you could deduct the loss. However, in that second situation, your "tax cost" for determining depreciation and loss on sale would be the resale value - determined at the date the timeshare is converted to rental use. That would probably eliminate most or all of the allowable loss!

 

[mike130]

Could you add closing costs to determine the cost of the timeshare? For example: Timeshare cost: $2000; closing costs, $400. Sold for $3000. Do you pay capital gains on $600 or $1000?

Thanks,
Mike

 

[Dave M]

Do you pay capital gains on $400 or $1000?

Neither.

The taxable gain is $600 ($3,000, less the sum of $2,000 and $400).

 

[caribbean]

Dave-

Boy you got me to thinking. Hadn't considered this at all. We bought a TS for $30,000 and owned it for 4 years. We used it the first year. Then rented it out the next 3 years. Found we could trade back in cheaper than the MF and did real well on the rental. Sold it in 2005 for $20,000. So how do I calculate that? Given the rentals, would any of this legally be deductible?

Thanks,

 

[mike130]

Thanks Dave. Typo ($600 or $1000)

 

[Dave M]

Patty -

No taxable gain, because you sold it for less than your cost (net of depreciation).

As for a taxable loss, the answer isn't clear.

Once you start renting, your tax cost for purposes of depreciation and for purposes of determining a possible loss on sale is the fair market value in the resale market (your sales market) at the date you converted from personal use to rental use.

So let's say the value was $20,000 on that date. Over three years you were entitled to - and should have claimed - about $2,200 in depreciation, reducing your tax cost for loss purposes to about $17,800. (That's the result whether or not you actually claimed the depreciation on your tax returns.)

Since your selling price ($20,000) exceeds the tax cost for loss purposes ($17,800), you had no taxable loss.

The depreciation, maintenance fees advertising and other rental expenses should have been reported in each of the three years on Schedule E of your tax return, partially or fully offsetting your rental income.

For the rules on how to treat rental income from a timeshare for tax purposes, see post #4 in
this thread.

 

[caribbean]

Dave-

Thanks for the info. Though it was at least worth asking.

Patty