Declaring timeshare rental income to IRS

[chapjim]

First, per my note above, IRS considers all rental activity to be passive. So the distinction is probably moot for this purpose.

But let's change the situation a bit. Say you are a reasonably good mechanic, and you occasionally work on cars of friends and relatives, collecting payment.

Now you start to get into the IRS rules defining whether something is truly a business or a hobby. If you want to do things such as take depreciation for tools or write off expenses to determine net income, you need to pass the tests to qualify as a true business. If you don't pass the tests as a business, then you have to pay taxes on any income earned, but generally cannot claim any losses.

There may be some issues involving passive vs active income/loss, but those are deeper than I have gone into the tax code. I only got in far enough to be sure that my consulting practice qualifies as a business.

This helps. I was only considering the "material participation" question. In my timeshare rental business, there is no question about whether I materially participated.

Since passive losses can only offset passive income, the distinction between passive and active income/loss becomes irrelevant unless there is a net loss, which I never had.

Does this sound about right?

 

[VacationForever]

To be honest, I have never reported the occasional rental (one or two weeks of a 1BR side of a 2 BR layout) because I rent them at cost. If a 2BR MF is $2000 and I rent it for $1,200, I consider it to be at cost and there is no gain on the rental. If I get audited, my argument would be that it's zero net income and hence I did not bother to report it. Is this a fair assessement?

 

[rapmarks]

To be honest, I have never reported the occasional rental (one or two weeks of a 1BR side of a 2 BR layout) because I rent them at cost. If a 2BR MF is $2000 and I rent it for $1,200, I consider it to be at cost and there is no gain on the rental. If I get audited, my argument would be that it's zero net income and hence I did not bother to report it. Is this a fair assessement?

Not really

 

[SmithOp]

To be honest, I have never reported the occasional rental (one or two weeks of a 1BR side of a 2 BR layout) because I rent them at cost. If a 2BR MF is $2000 and I rent it for $1,200, I consider it to be at cost and there is no gain on the rental. If I get audited, my argument would be that it's zero net income and hence I did not bother to report it. Is this a fair assessement?

I agree with this, if I can show that I am just recovering my cost there is no profit - no reason to involve the IRS.

The likelihood the IRS would audit is infinitesimal, a computer audit (cp2000) would not pickup cash transactions, and the agents aren't looking at small potatoes.

If you are using an advertising third party like Redweek or Koala then a 1099 Misc or 1099-K could get filed, then the CP2000 computer audits would pick up the income and you would get a letter by mail audit. CP2000 audits calculate the corrected tax return and send a bill, if you agree just sign and send a check. If you disagree you have to file amended return. For something like this they may request a Sched C.

 

[WorldT]

I agree with this, if I can show that I am just recovering my cost there is no profit - no reason to involve the IRS.

The likelihood the IRS would audit is infinitesimal, a computer audit (cp2000) would not pickup cash transactions, and the agents aren't looking at small potatoes.

If you are using an advertising third party like Redweek or Koala then a 1099 Misc or 1099-K could get filed, then the CP2000 computer audits would pick up the income and you would get a letter by mail audit. CP2000 audits calculate the corrected tax return and send a bill, if you agree just sign and send a check. If you disagree you have to file amended return. For something like this they may request a Sched C.

If you are going to file any tax return, report all income and then deduct all expenses even if your net profit from that is zero. That is the philosophy I go with. The more complicated question will be how to classify the rental of weeks or points. That is what earlier post were trying to clarify.

 

[chapjim]

If you are going to file any tax return, report all income and then deduct all expenses even if your net profit from that is zero. That is the philosophy I go with. The more complicated question will be how to classify the rental of weeks or points. That is what earlier post were trying to clarify.

If you are going to file any tax return, report all income and then deduct all expenses even if your net profit from that is zero. That is the philosophy I go with. The more complicated question will be how to classify the rental of weeks or points. That is what earlier post were trying to clarify.

Even there, we have to distinguish points that are deeded (e.g., Wyndham Select) and points that are in a trust (Wyndham Club Access). I still think Schedule C works best for timeshare rentals.

 

[dioxide45]

To be honest, I have never reported the occasional rental (one or two weeks of a 1BR side of a 2 BR layout) because I rent them at cost. If a 2BR MF is $2000 and I rent it for $1,200, I consider it to be at cost and there is no gain on the rental. If I get audited, my argument would be that it's zero net income and hence I did not bother to report it. Is this a fair assessement?

I think the only time it would be an issue is if you got a 1099 for the rental proceeds. Otherwise the IRS doesn't know and is probably going after larger fish in the pond.

 

[rapmarks]

My sister had a cpa do her taxes. A cd came through as a wash. I don’t know why it wasn’t reported as such but irs hounded her for capital gains on that cd for months, wanted 40k capital gains. It was eventually straitened out

 

[T_R_Oglodyte]

I agree with this, if I can show that I am just recovering my cost there is no profit - no reason to involve the IRS.

The likelihood the IRS would audit is infinitesimal, a computer audit (cp2000) would not pickup cash transactions, and the agents aren't looking at small potatoes.

If you are using an advertising third party like Redweek or Koala then a 1099 Misc or 1099-K could get filed, then the CP2000 computer audits would pick up the income and you would get a letter by mail audit. CP2000 audits calculate the corrected tax return and send a bill, if you agree just sign and send a check. If you disagree you have to file amended return. For something like this they may request a Sched C.

About five years ago, we were audited by the IRS. In great detail. Among other items, they wanted to know the source of every deposit we made to any financial account we had, including apps such as PayPal. They also scrutinized all of our expenditures, looking for payments to service providers that might fly under the tax radar. If we had made any large cash withdrawals, they would have scrutinized those, looking for under-the-table payments to contractors and service providers.

 

[avk104]

Now you start to get into the IRS rules defining whether something is truly a business or a hobby. If you want to do things such as take depreciation for tools or write off expenses to determine net income, you need to pass the tests to qualify as a true business. If you don't pass the tests as a business, then you have to pay taxes on any income earned, but generally cannot claim any losses.

A bit late to the party, but I found this regarding renting points: https://ttlc.intuit.com/community/taxes/discussion/timeshare-points-rental-income/00/2893494