Timeshare tax is the tax on the money from the sales of unit. If you sell your timeshare unit and now you need the tax information for filing the income tax return, here is the information for you. There are a few questions in the mind of the people selling timeshare. Is the gain on the sales taxable? Similarly, is the loss deductable? How is the gain or loss calculated? Is there the need to report the sales on your tax return too? What is the impact of donating timeshares on tax?
Timeshare Tax Info if You Sell Your Unit
The below mentioned points clarify the question of timeshare tax on selling timeshares:
Misconception with selling timeshares
Usually people have the wrong belief that selling timeshares does not involve timeshare tax and that there is no need to pay the income tax. However, selling timeshares involves tax. It is treated in a similar way to that of selling a property. Timeshare property comes into the capital asset in the accounting. Thus, the profit on selling timeshares comes under capital gain. Thus, the gain is taxable.
Subject to be Waived Off
You need to pay the tax if ownership of property is for more than one year. You can deduct the expenses on this timeshare property for the expenses suffered for the whole year. These expenses cover cost associated with buying and maintaining timeshare, closing costs, special assessment fees etc.
What if selling timeshares Incur Losses
In case selling timeshares incur losses, the rules are the same as other real estate property. Under such circumstance, the loss suffered is termed capital loss. You cannot deduct the losses suffered in your tax return file. The loss suffered on sale is treated as allowable business losses. Thus, it would be termed as an allowable ordinary loss in tax returns. In case the unit has been back to personal use before selling, the IRS cannot allow the sale.
Reporting on Selling Timeshares
In most of the cases of timeshare sales, you would receive the Form 1099. You should report the gross proceeds of the sales through this. The gross sales proceeds are equal to your selling prices before deducting the commission on sales and other miscellaneous expenses. The sales should be reported on the income tax return even though you don't have Form 1099.
In case of donation, the timeshare tax has a different scenario. When the timeshares for the deeded time donates, the amount deductible is usually equivalent to the Fair Market Value on donation date. This is the price that arms length buyer and seller in the timeshare resale value agrees up on. There is no correlation with the developer charges for the same week. When the Fair Market Value exceeds $5000, write the appraisal to meet IRS guidelines.
Selling timeshares is under losses in almost all the circumstances, but in case you gain on the sales, the income is taxable.