Loss on Sale of Tymeshare

[Uncle Sam]

A client just called and asked can he take a loss on a tymeshare unit?
Bought it in 2003.
He is very seriously ill - needs to have oxygen attached to him full time. Wife isn't that well either. Both don't/can't travel like they used to.
Claims the tymeshare salesman stated there's a new law that permits it.
Anyone know anything about this?

[JAinNC]

Only if it was investment property and not for personal use, If it was a causalty loss it may be deductible on Sch A (I doubt that is the kind of loss you meant)
Jeannie

[JAinNC]

Duhhh - Loss on Sale - obviously I can't read the heading of a post. Sorry.

[Nashville]

Maybe

How's that for a straight answer?

Factors:

Tymeshare unit is not principal residence, so we can forget about those rules.

Having established that this is not a principal residence, we should now determine whether this is simply a capital asset. If so, no loss allowed there either.

Only hope for deducting would be to what extent this would qualify as an investment, and that isn't divulged in the original post. If the loss may be taken, one silver lining is that they might can file a Form 4797 transaction if actually used for business. The advantage here is that the $3000 capital loss ceiling does not apply.

If the thing has just sat there for 5 years with minimal use and nothing which could be considered business use, it is simply a capital asset. Sell it at a gain and you have tax. Sell it at a loss and you have nothing.

[gkaiseril]

A client just called and asked can he take a loss on a tymeshare unit?
Bought it in 2003.
He is very seriously ill - needs to have oxygen attached to him full time. Wife isn't that well either. Both don't/can't travel like they used to.
Claims the tymeshare salesman stated there's a new law that permits it.
Anyone know anything about this?

No, is a personal asset for which not loss is allowed . Also only a part of the asset's rights were sold so this was not a complete disposal of the asset by all the associated owners.

Code: 165(f), 280A(d)(2)(A), 1.280A-1(e)(1), 1.280A-3(f)(3)

Tax Court
Efrem V. Fudim and Margarita L. (TC Memo 1994-235),
John C. and Elizabeth A. Dewey (TC Memo 1993-645)

Exceptions could apply if a dealer in timeshare units.

[Zee]

Link to article that answers your question

I've posted this link several times before. It's an writing that should answer most questions on taxes and timeshares written by a friend of mine Dave McClintock, a former Big Six Tax Partner:

http://www.tug2.net/advice/TUG_Taxes_and_Timeshares.htm

[Uncle Sam]

Timeshare

Thanks Zee.

[Uncle Sam]

Loss on Timeshare

Okay.
Client acknowledges and understands the law that under ordinary circumstances no loss.
Now he claims that it was his INTENT to rent out but was never able to. Claims the timeshare agent wasn't able to get it rented. Now that he's interested in disposing of the property, he can't sell it directly. He can only assign title to the timeshare people and they sell it as part of a group of timeshares. That way he's no longer responsible for paying maintenance charges associated with ownership


So long as I've been doing his return, has not taken any administrative expenses or shown anything on the return relative to this.

I have explained to him that in order to claim losses for this timeshare - he needs to disclose the fact on the return (Form 8275) to warn IRS that this is contrary to law. He is willing to do that. He's willing to take that chance. He feels that once he discloses it the worst that can happen is 100% denial of deduction and payment of interest.

[Roberts]

Has anyone ever heard of a timeshare being a good idea?

[TaxmannEA]

Has anyone ever heard of a timeshare being a good idea?

Many times. Just ask the agents that sell them!!

[Zee]

Okay.
Client acknowledges and understands the law that under ordinary circumstances no loss.
Now he claims that it was his INTENT to rent out but was never able to. Claims the timeshare agent wasn't able to get it rented. Now that he's interested in disposing of the property, he can't sell it directly. He can only assign title to the timeshare people and they sell it as part of a group of timeshares. That way he's no longer responsible for paying maintenance charges associated with ownership


So long as I've been doing his return, has not taken any administrative expenses or shown anything on the return relative to this.

I have explained to him that in order to claim losses for this timeshare - he needs to disclose the fact on the return (Form 8275) to warn IRS that this is contrary to law. He is willing to do that. He's willing to take that chance. He feels that once he discloses it the worst that can happen is 100% denial of deduction and payment of interest.

Well, that's certainly up to you. I'd probably tell a client that wouldn't listen to simply find a new preparer. They aren't worth the headaches.

I've never heard of a timeshare you can't sell directly (especially those that are deeded). Even right to use timeshares can be sold. If it's a valuable one (Iike Marriott, or a few others), there sometimes is a right of first refusal. Or, I suppose it might be a vacation club of some kind. So, I think your client isn't being honest with you. I'd ask him to see the document forbidding a sale.

Last, I also know of few situations that will not charge a maintenance fee. I know of one, a Mexican timeshare that doesn't charge the maintenance fee if the week isn't used. However, I don't know the conditions. Most won't even take back a timeshare offered as a quick claim, and certainly won't offer to forgo the maintenance fee while they attempt to sell it. I'd be very leery of any such claims.

My guess is your client owns a flexible week (not a deeded week), and he got screwed when he purchased. In reality, since the percentage of folks audited is less than 1%, the loss will not be questioned. The 8275, however, will most likely increase the chances of audit.

[taxdude71]

Must be that time of year. Had a client call me today saying that some one trying to buy their timeshare at a seminare told them they could deduct the loss. I talked her out of it, but I'm sure there were a few people that were talked into selling.

[Zee]

Must be that time of year. Had a client call me today saying that some one trying to buy their timeshare at a seminare told them they could deduct the loss. I talked her out of it, but I'm sure there were a few people that were talked into selling.

OK...I'll share a story. These seminars are frauds. The pitch generally is we'll take your timeshare as a trade for a vacation club and your cost will be zero because you'll be able to write-off the full loss of your timeshare.

A few years ago, Dave McClintock and I wrote a series of articles for a couple of magazines on timesharing. Much of that information is in the link I sent to you.

I got a call from someone that had attended one of those "seminars". They took our article and totally rewrote it. The article said you could deduct the loss. That wasn't all. They told the attendees that they hired us to write the article....blah...blah...blah, and had endorsed them.

We never heard of them. Apparently, they were traveling state to state with the same pitch. We hired an attorney, and he was able to get a "cease & desist" order. That was the end of it. I don't even remember the firm name.

Since then, the practice keeps popping up all over the place.

There are a couple of golden rules in timeshares. First, never pay anyone an upfront fee (even $250-$500)to sell your timeshare. They never deliver, take your money and you'll never hear from them again. Think of the profits...multiply the number by thousands. When they're caught and prosecuted, there is no jail time and the fine is minimal.

The old saying, "crime doesn't pay" isn't true with white collar crime any longer. Only a few get any real jail time, and the fines are miniscule in terms of the profit.

[JohnH]

Okay.
Client acknowledges and understands the law that under ordinary circumstances no loss.
Now he claims that it was his INTENT to rent out but was never able to. Claims the timeshare agent wasn't able to get it rented. Now that he's interested in disposing of the property, he can't sell it directly. He can only assign title to the timeshare people and they sell it as part of a group of timeshares. That way he's no longer responsible for paying maintenance charges associated with ownership


So long as I've been doing his return, has not taken any administrative expenses or shown anything on the return relative to this.

I have explained to him that in order to claim losses for this timeshare - he needs to disclose the fact on the return (Form 8275) to warn IRS that this is contrary to law. He is willing to do that. He's willing to take that chance. He feels that once he discloses it the worst that can happen is 100% denial of deduction and payment of interest.

Well, 100% denial of deduction and payment of interest isn't the worst thing that can happen. But who cares if you've got a tax preparer willing to sign the return, especially if they have E&O insurance? The odds are that you can lay off some of the cost on the preparer or his insurance company, especially if you're willing to pretend nothing was really explained to you all that well if the IRS actually does question the return. But I'm sure your client wouldn't have anything like that in mind...