Discussion:Rental income from a time share
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Discussion Forum Index --> Basic Tax Questions --> Rental income from a time share
Discussion Forum Index --> Tax Questions --> Rental income from a time share
| 12 April 2011 | |
| If a client has a time share and receives a 1099 for rental income from it, do I treat it as a Sch E rental property? | |
| 12 April 2011 | |
| Yes, but usually, you can't deduct a net loss. I wrote an article about this a few years ago that you might want to read: "Before You Deduct a Loss From a Timeshare Rental, Read This". | |
| 28 April 2011 | |
| I have a client that owns 1/4 of the year on a timeshare. About 5 years ago, they stopped using it for personal purposes and have been renting out their weeks. Despite "their" 100% business use and much to their chagrin, I have been applying the Sec 280A limitations to their loss under the assumption that there is substantial personal use by the other owners.
Now they are selling their 1/4th interest in the property and they are expecting a large loss. Can they write this loss off, or is that realized loss also subject to the 280A limitations? Second question: Do the Sec 280A carryovers become deductible in the year of sale? | |
| 28 April 2011 | |
| Excellent questions with no guidance anywhere from the IRS or from Congress. Given that, I say deduct it. | |
| 29 April 2011 | |
Passive Activity Audit Technique Guide:
After reading the last part of Dave's article, it looks like this rule may not apply to timeshares because of the personal use. However, I could be misinterpreting one or the other. Hopefully someone else will chime in. | |
| 29 April 2011 | |
| In my opinion, sale of the timeshare interest at a loss, where the weeks of the timeshare have been rented to tenants for the past 5 years, results in a Sec. 1231 loss, i.e., an ordinary loss.
The prohibition on deducting a loss on the timeshare is in Sec. 280A, and it's based on the fact that the other owners of the "dwelling unit" have used their weeks of the timeshare for personal or vacation use. However, when a taxpayer sells his or her interest in the timeshare that was held solely for rental use (no personal use), I think that it's treated as a disposition of property that was held for use in a business. I'm not sure what happens to the section 280A carryovers. However, in computing the limitation on deductions under Sec. 280A(c)(5), wouldn't the selling price be considered "gross income" derived from use of the dwelling unit, which would allow the taxpayer to deduct the carried-over deductions? | |
| 29 April 2011 | |
| wouldn't the selling price be considered "gross income" derived from use of the dwelling unit
Key words bing "derived from use" - A Selling Price is, arguably, not gross income "derived from use." Hence no guidance on this matter. | |
| 29 April 2011 | |
| Thank you all for your input on this. Sec 280A only limits the usage deductions on the property; it is silent with respect to limiting the loss on the sale of the property. Therefore, Sec 280A is not applicable to the sale of the property, and I agree that the loss should be deductible since the property was used for business purposes.
With respect to the unused Sec 280A carryovers, I don't see how those can become deductible at the time of sale. Sec 280A only releases these based on the gross income from usage. The sale is not "usage" as Ckenefick points out. Even if it was, I am certain that gross income on a sale transaction would mean net gain and not total sales proceeds. And in my client's case the net gain is a negative number. | |
