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IRS Tax on timeshare sale

holmestm

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Hi

I've just agreed a sale on my timeshare unit in California and we are using a company called Timeshare Closing Services in Florida to transfer the ownership.

They have informed me that as I live outside the US (in the UK) I will have to pay 10% of the sale to the IRS.

I'd just like to verify whether or not this is correct. If it is then it is something that others in the same position might like to be aware of.

Tim.
 

BocaBum99

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holmestm said:
Hi

I've just agreed a sale on my timeshare unit in California and we are using a company called Timeshare Closing Services in Florida to transfer the ownership.

They have informed me that as I live outside the US (in the UK) I will have to pay 10% of the sale to the IRS.

I'd just like to verify whether or not this is correct. If it is then it is something that others in the same position might like to be aware of.

Tim.

Technically, if a US buyer buys a timeshare from a non-US citizen, a 10% withholding is required to ensure that the IRS can collect any capital gains taxes due. Well, with timeshares, there usually isn't a capital gain, especially if its bought from the developer. So, there are a bunch of hoops you can go through to avoid that withholding tax. If it is withheld, you can file a tax return to get it back. Many timeshare transfer companies I know simply avoid it. The wrong thing to do, but a common practice.
 

Dave M

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Assuming that this is a normal timeshare sale and not something unusual (such as a direct exchange of one timeshare for another timeshare or the sale of property that you would use as a full-time residence - but see below), you're likely stuck for the withholding. Period.

However, as BocaBum99 states, you can file a nonresident tax return for 2005 to get the tax back (assuming that you have no gain on the sale and that the transaction closes this year).

See this linked thread for a further discussion of this issue. You'll note in that thread a post by Art discussing a use-as-a-residence exemption from withholding. However, some tax experts interpret the phrase "at least 50% of the number of days the property is used" as applying to the full year for the timeshare, not just the one-week portion of the year owned by a single person. If that's an accurate analysis, there would likely be no applicable exception to the withholding requirement.
 

Art

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Yes, it did work as Dave stated, and no money was withheld for the IRS.

The biggest hoop someone in the UK will have to jump thru is to get to a US embassy and have an affidavit notarized by a notary with a commission from somewhere in the US. The affidavit is just standard boilerplate language and should be prepared for you by the closing company.

Your US buyer will have less problem with his affidavit since he will have easier access to a US notary. The closing company should also prepare that affidavit.

Art
 

holmestm

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Thanks for your guidance in this.

Actually, I'd appreciate the contact details of the closing agents who 'simply ignore' the ruling since that might be a simpler solution all round...

There certainly is not any capital gain on the resale.

Tim.
 

Art

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Tim

Can't help you with the names of closing agents who "ignore" the rule. However, if an agent was willing to "ignore" this rule, I would be very concerned about his overall ethics.

Art
 

embee

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Bumping this up for more info...

we're in Canada, and have been advised that we would have to pay the 10% (we're the sellers), and that it would simply be withheld.

No mention of exceptions to this tax have been made, at all..

If we have notorized affadavits, buyer and seller, saying no capital gains, the 10% is not withheld?? Why the embassy hoop jumping?

Just call us confused...??..and thanks for any "timesharing selling Canadian dummies" help :D
 

Dave M

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Yes, if you meet one of the exceptions discussed in the thread linked above, you can avoid the withholding. Or, if you have it withheld, you can file a U.S. return to claim a refund.

The reason for jumping through hoops is that the US. tax authorities want to be sure they get the tax when it's due. A non-resident who gets full payment upon sale and owes the tax isn't likely to file a U.S. return and pay the tax if there is no other connection to the U.S.
 

embee

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Thanks Dave!

If a US citizen vacations here in Canada, they can apply to have any HST/GSTsales taxes they paid, refunded to them, after they return home.

Have a feeling not too many travelers do this, and I'm guessing that this FIRTPA tax would fall under the same sort of category, then?

If I'm understanding correctly, *as long as there aren't capital gains*, we can either:
a) fill out the forms, have them notarized, and filed at our "local" US Embassy??
or
b) complete the sale,10% withheld, and then, file a non-resident US tax return...and get our 10% back some in the next 12-14 months..??

The next part of our question, then, is what if we do all of A) while in Florida ourselves? Is there a way for a timeshare broker to assist in this process? I ask because the broker that we've been in touch with never mentioned any exception to the tax. Just that we're responsible for paying it.

We would like to use a broker, but the 10% commission, *plus* a 10% tax is just too much....

We're prepared to pay 10% to sell our timeshare...either we're paying it to a broker to do the work, or we're paying it to the government, and doing the work ourselves...with the hope that it's refunded to us in the end.

Again, thank you all for any insight...

____________________________________________________

OK, I just re-read the linked thread.. and my head is starting to hurt....

No wonder other foreign sellers just walk away from the deal!! :D Back to read it again..
 
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embee

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Art said:
Yes, it did work as Dave stated, and no money was withheld for the IRS.

The biggest hoop someone in the UK will have to jump thru is to get to a US embassy and have an affidavit notarized by a notary with a commission from somewhere in the US. The affidavit is just standard boilerplate language and should be prepared for you by the closing company.

Your US buyer will have less problem with his affidavit since he will have easier access to a US notary. The closing company should also prepare that affidavit.

Art

Does this answer my question about doing this while we are in Florida ourselves?

Here are our scenarios..

A)We have a buyer. We live in Canada, our buyer is in the US.
B)The timeshare property is located in Florida.
C)We can take our deed, and all other information with us when we go to Fla.
D)We meet with a closing company agent, and give them all of our paperwork.
.....1)USNotary affadavit form is given to us, our CC gives us a name of the person that can sign this, we present ourselves to said notary, affadavit is signed, and done.
E)Our buyer sends their check, and their notarized affadavit of no gains to the CC..
F)Sale is done, deed is transferred, and no tax withheld.

We've managed to "save" a 10%commission - we already have the buyer - and the hoops are jumped through, on US soil.

*OR*
A)We don't have a buyer.
B)We take all info with us when we go.
C)Meet with a timeshare resale broker.
...if a buyer is found before we leave the state...then all the same is done..
...no buyer before we leave..??
We pay the 10%commission, we pay the 10% tax, and then begin the arduous process of obtaining a US tax ID, and then filing as a non-citizen...and sometime in 2007 (after 2006 refunds are processed) we get our 10% back.

Or maybe we wouldn't qualify for any exception anyway... :confused:

Do I have this right, at all???

Again, our thanks..
 
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Dave M

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Unfortunately, I think you're going to be stuck for having the tax withheld. It doesn't appear as though you meet any exception to the withholding requirement. You can file a tax return to claim a refund.

If you take a look at posts #11 and #18 in that other linked thread, you'll see that as a non U.S. citizen, the only practical way to use the affidavits to avoid the tax would be if you are a resident of the U.S.
 

embee

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Dave M said:
Unfortunately, I think you're going to be stuck for having the tax withheld. It doesn't appear as though you meet any exception to the withholding requirement. You can file a tax return to claim a refund.

If you take a look at posts #11 and #18 in that other linked thread, you'll see that as a non U.S. citizen, the only practical way to use the affidavits to avoid the tax would be if you are a resident of the U.S.

Thanks Dave! We appreciate the help and information :)
 
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