Time share hell

[joanmcq]

Client comes in saying they sold their three timeshares. For $1 apiece to a company that told them all about the great tax loss they could take; even worked out the cash flow from the capital loss for them. Turns out they also paid the company $5,000 for this 'favor'. This is listening to advice as bad as they did when they bought the darn things; one they never used; tried to rent it or swap it. Of course they were sold on what a great investment these things were. I've never taken any rental anything on them, only RE taxes paid on their fractional interest.
Question: if never used, any chance of a capital loss?

This client also panicked and withdrew all of her retirement. ALL of it, and put it into gold. Why didn't she call me first????? Could have rolled it into a IRA holding gold ETFs or even a self directed one holding the gold itself. Could have just walked away from the timeshares. God I hate predators; someone sold them on this crap.

[RitaB]

Your title is killing me!

Lord, I laughed out loud.

They can't take a loss on a personal "sale." ( $1 -- geez. LOL)

Yeah, about the gold, why didn't they call ME first? I could have advised them and only charged half of the investment. It would have been a win-win situation. Haha!

[joanmcq]

Well, my hope and what they were hoping is that intent, like the second home that is held for investment, can take it from a personal loss to an investment loss. Just because it is a really really bad investment...

[RitaB]

Oh, I see what you're saying

Maybe you're onto something if they never used it personally. I can't get over the "investments" people make.

You know, there's something to be said for a good old savings account. Or a cookie jar.

[Bees Knees]

If I buy a toaster, never use it, and then sell it at a garage sale for $1, can I take a loss and call it an investment loss?

No.

A toaster is a personal item. Unless I somehow can claim it is an antique, or piece of art that will appreciate in value, it is a personal item regardless of whether I use it or not.

Your client would have to make the argument that there was no intent on buying the timeshare for personal use and that there was an expectation that the timeshare would increase in value. I doubt your client can make that argument. Thus, I would probably say no to the deduction.

[RitaB]

Intent

Your client would have to make the argument that there was no intent on buying the timeshare for personal use and that there was an expectation that the timeshare would increase in value.

People who buy three time shares may really think they're going to increase in value.

I'm sorry, I am laughing WITH you, not AT them. OK, maybe a little.

[BP.]

something to be said for a good old savings account. Or a cookie jar.

And the coffee can buried in the backyard

[DaveO]

I think it's pretty sad that someone preys on such people. A so called investment advisor got a client of mine to roll their $50k IRA over to a viatical settlement. Gold has been a great investment as long as you bought between $300 and $500.

[joanmcq]

I know. I hate predators. I wish they had called me about doing this. First (last year) she rolled part of her pension into a variable annuity. Part of the reasoning was because her pension could not go to her wife upon death, but a private annuity or IRA can have any beneficiary you want. When the market was crashing she panicked. Of course she didn't ask me about the annuity either. She knows the tax hit is going to be huge. but jeez; she coulda put it in an IRA at the bank and gotten 4 or 5% at the time she did it...

And I looked at the marketing material from the purchase of the timeshares and the 'sale'. At least they have the 'what's done is done, can't stress over it' attitude. When I look at how much money they threw away it makes me ill.

[JohnH]

“The time to save is now. When a dog gets a bone, he doesn't go out and make a down payment on a bigger bone. He buries the one he's got.” - Will Rogers

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I apologize if I'm stepping on any toes on this forum, but would it be unfair to say that someone investing in viatical settlements is in a sense setting themselves up to be taken to the cleaners? After all, there is a certain mindset involved, assuming they know precisely what they are doing...

[Snaggletooth]

Dissenting Voice

All of my cohorts whom I highly regard are saying "no." I might say yes.

A legitimate investment can be taken as a loss. Had it been sold for a profit the gubbermint would be standing at their door with their hands stuck out for tax money. Of course there is always the "personal" capital gain/loss which means that it is taxed if and gain and nondeductible if a loss.

Two factors. Is it a legitimate investment? Is it a "personal" loss, i.e. not an investment.

These units WERE a legitimate investment. This wasn't a Ponzi scheme, the units did actually exist, albeit used some for personal purposes. I'm sure part of the sales pitch was to emphasize they were skyrocketing in value, so the buyers would rush right in and get in on the "ground floor" while prices were "cheap." I wouldn't doubt the sincere belief that these investments would gain in value. And there's no reason why they wouldn't except for the housing crash and the fact that they were overbuilt to begin with.

Is it a "personal" loss? This is probably the crux. The "personal use" factor is limited to only a few days a year, most likely not enough to satisfy the 14 day question on sch E if they were rented. Except for the notorious track-record of these timeshares, no different than investing in Land or other Real Estate that got caught up in the Crash.

The "Sale for $1" was a hoax. This can't be deducted. If the sellers lost title I don't think I could report a sales value less than FMV. However, before investing in stocks, many investors read the corporate "annual report" which is nothing more than a press release and just as much bull as the hype around timeshares. But no one disputes reporting a loss for General Motors or any other stock that tanks.

[taxxcpa]

Investment advisors

Most investment advisors are more salesmen than advisor. Even with the best of intentions, they don't have the ability to predict the future. Time shares and similar real estate deals may have a history of rising prices because the developer sells the first ones cheap, then raises the prices until he unloads them all. Then without him promoting it, they can only be re-sold at a loss.

Gold, however, is another story. G. Gordon Liddy is now promoting gold as a sure thing.

[jeff501]

Time share experience

This is a personal experience with Time Shares, I apologize in advance for straying.

In 1999, my wife got a letter from some time share resort in Branson, MO. Free weekend, a show, etc. plus $50 if we agreed to sit through a sales pitch. I didn't want to go but we wound up there anyway. Never in a million years would I ever consider buying one of these things but anyway...

We get to the hotel on Friday, and it was a nice room just like they said. Saturday we messed around Branson then went to this presentation about 3 pm. My mistake was probably telling him at the start all we were doing was to fulfill our end of the deal and had no intent of buying. Just as I suspected, the guy said he wasn't going to try to sell us anything just wanted us to look at the condos.

At the end of the hour, we were herded into a sales room with probably 40 other couples getting the hard sell. While we were there, three couples were suckered into buying at 14% interest for 30 years, the salesman would stand up and announce them to the crowd. I thought to myself, "buyers remorse will set in the next day and these poor people will be stuck with an overpriced condo". Plus the guy tried to tell us it would pay for itself with future savings against going to places like Orlando, Las Vegas, etc. as prices would surely rise in the future.

He kept pressuring us to buy and I got mad and started raising my voice, drawing attention from the crowd, saying what a rip off this was and we just wanted to get the he** out of there. A supervisor rushed over, signed our voucher for the $50 and got us out the door. Now I make sure these mailings hit the shredder.

The highlight of the weekend was seeing an Elvis impersonator in old downtown Branson. We thought it would be pretty cheesy but the guy was actually pretty good and entertaining. This wasn't the show we got through the promotion, we never even went to that one. If we ever go back to Branson we'll just make reservations and enjoy the weekend.

[JohnH]

I've never seen anyone make money on a time share, and most people wind up not using them enough to compensate for the true cost. Better to just rent a motel room, condo, or somebody else's time share and retain the flexibilty to go or not go when you want.

Having said that, we do own a time share that we bought 15 years ago. We paid $500 plus a couple of year's back dues ($200 or so per year) to the owner because he wanted to get out of the obligation for paying the annual dues - he originally paid $7,000 or so for it. We enjoy it but I learned from that experience not to put too much money in a time share.

[Bees Knees]

To clarify, deducting a loss on a Timeshare is deductible, if the activity was a for profit activity.

T.C. Memo. 1997-319 makes that point clear.

http://www.ustaxcourt.gov/InOpHistoric/MURTAUGH.TCM.WPD.pdf

This court case focuses on whether or not the loss is capital, as an investment loss, or ordinary as a trade or business loss. In either case, however, both need to have a profit motive with no personal use in order for the loss to be deductible.

But I will state my case again. The taxpayer must prove that his/her intent was to make a profit when the timeshare was purchased. If the timeshare was purchased for personal use and had no profit motive intent, the loss is personal, regardless of the actual personal use. Proving profit motive is always key in court decisions regarding timeshare losses. The above cited court case goes into great detail about the taxpayer’s motive and reason for purchasing a 25% interest in the timeshare unit as opposed to just purchasing another rental property.