1099A for timeshare

[Possi]

My clients got a 1099A for a timeshare.
box 2 balance outstanding is 21,344
box 4 FMV is 24,900
box 5 NOT checked.

They got behind on the payments and were offered a deal. They paid one fee of $500.00 to turn the property back over to the timeshare company.

Does this go on the Sch D with SV of 21,344 and Cost 21,344? No gain, no loss since the FMV is greater than the outstanding balance?

(On another note, Sis said she will be visiting often, so W2 is my final answer. I'll be paying her more than a little gift.) =)

[dan doshan]

Not an expert on timeshare situations but would not the cost be whatever their actual cost was. Could it be less than 21,344. If so, then could they possibly have a gain. I guess I am just winging it here because I really do not know how these time share deals work.
All the 1099A seems to be saying is that there will be no cancellation of debt as the FMV is more than the debt owed.

[Koss]

Form 1099-A

This is not one of my strong points, but intuitively it feels like...

The proceeds of the sale (or disposition, or whatever you choose to call it--they got rid of it) is the outstanding balance minus $500.00.

I agree with Dan that you do need to know what their cost basis is, and in theory it might need to adjusted (by depreciation allowed or allowable, etc.).

If the proceeds of the sale, as defined above, exceed their cost basis, then they have a gain; if the proceeds are less than their cost, then they would appear to have a loss.

BMK

[Possi]

Not a sale, yet

This is not one of my strong points, but intuitively it feels like...

The proceeds of the sale (or disposition, or whatever you choose to call it--they got rid of it) is the outstanding balance minus $500.00.

I agree with Dan that you do need to know what their cost basis is, and in theory it might need to adjusted (by depreciation allowed or allowable, etc.).

If the proceeds of the sale, as defined above, exceed their cost basis, then they have a gain; if the proceeds are less than their cost, then they would appear to have a loss.

BMK

I don't think it was a "sale" because the timeshare people took it back, for the fee of $500.

I have no idea what it might actually sell for...

They never rented it out, so there is no depreciation.

I think I have it, based on both replies.

Thanks~~

[Zee]

It appears the poster has already determined how to handle this, so I'll include this for informational purposes.

Most timeshares on the resale market are worth little or nothing because of high annual maintenance fees and frequent assessments. As such, owner's are often happy to give them away just to avoid the recurring costs. Those having value are typically worth a small fraction of the original selling price.

As such, I would question the FMV shown on the 1099. Most likely, it represents the Developer's selling price since it exceeds the debt. The resale price on the open market is a better measure of the FMV. A small amount of internet research on ebay and other sites can verify the FMV reported.

So, the question is should a preparer accept the FMV on the 1099A without question?

The instructions to the borrower that should have been received with the 1099A includes the following:.

"Box 4. Shows the fair market value of the property. If the amount in box 4 is less than the amount in box 2, and your debt is cancelled, you may have cancellation of debt income. If the property was you main home, see Pub 523 to figure any taxable gain or ordinary income."

The 1099A is an information form. If the preparer believes the FMV on the 1099 is reasonable, the transaction should be reported on a Schedule D without taking a loss (since losses on timeshares are generally not deductible). This technique might avoid later matching problems.

If research indicates the FMV is unreasonable, it is most likely there is a gain on debt cancellation.

[Possi]

No Sch D at all?

The 1099A is an information form. If the preparer believes the FMV on the 1099 is reasonable, there is no gain and no further reporting is required, simply retain a copy of the Form with the tax return.

I'm not required to report this if there is no gain? It is not like a 1099S that has a matching rule with the IRS?

[Zee]

Possi-

I'm editing this again for the 3rd time. My understanding is that if the debt is cancelled a 1099C may follow (possibly in a different tax year) because state laws allow continued collection activity in many situations. It appears in your situation the debt was indeed cancelled.

Losses on the sales of a timeshare unit are generally not deductible. but it does make good sense to report the transaction on a schedule D without taking any loss to avoid a "nasty gram" and any "matching" problems.

[Possi]

Zee

Thanks, Zee. I always wonder where to report these 1099's that really don't create a tax liability. Losses on personal homes and such... Taxwise has a worksheet to fill out, but it does not create a Sch D. I did a sale of personal residence today, and if I didn't print the worksheet for the client, there would be no indication that I had addressed the sale at all.

Now I'm sure this 1099A will be the same way. It won't generate a Sch D. I'll either force one or I'll do the worksheet and let it fly.

I'm so knee deep in the hoopla right now, I need to be done with it. My computer operating system decided not to dance with Taxwise suddenly, and I had to replace my entire computer. Two days of work was lost, which makes me about 4 days behind, somehow.

[Possi]

1099A simplified

I just found this on the internet. It really simplifies "where" and "how" and "when" to report the 1099A.The question was, how do you report a 1099A...
and here is the answer:

"First - please verify that you have to report this at all. For most people the form 1099-A is for imformatoin purposes only - if taxes were due because of cancellation of debt then the bank would send you a 1099-C, not 1099-A. So the first question to you is: does the amount reported in box 4 of the 1099-A (Fair market value of property) exceed the amount in box 2 (Amount of principal outsanding)? If yes, then this is not reportable on your taxes UNLESS the box 2 amount exceeds your adjusted cost basis in the property - in which case you have a gain. IF you have a gain, then please respond back, and let us know if this property was your principal residence for at last two of the previous 5 years. We'll continue with the details of how to report this after you respond.

If Box 4 is less than box 2 then you have cancellaton of debt, and you may owe taxes if you don't qualify for an exclusion under the Mortgage Foregiveness debt Relief Act, or if you didn't declare bankruptcy."

[Zee]

Thanks, Zee. I always wonder where to report these 1099's that really don't create a tax liability. Losses on personal homes and such... Taxwise has a worksheet to fill out, but it does not create a Sch D. I did a sale of personal residence today, and if I didn't print the worksheet for the client, there would be no indication that I had addressed the sale at all.

Now I'm sure this 1099A will be the same way. It won't generate a Sch D. I'll either force one or I'll do the worksheet and let it fly.

I'm so knee deep in the hoopla right now, I need to be done with it. My computer operating system decided not to dance with Taxwise suddenly, and I had to replace my entire computer. Two days of work was lost, which makes me about 4 days behind, somehow.

Possi-

Doesn't your tax software have an input form for Form 8949 (which carries forward to Schedule D)?

There a lots of folks with timeshares they can't sell or even give away in this economy. In fact, the situation has created fertile ground for scammers charging upfront fees for listings with unfulfilled promises to sell the timeshares. They make millions before they are shut down.

Form 1099A and 1099C are creating numerous problems for filers in determining what the heck to do with them. I've built a file with lots of research, it's kinda complex.

Giving a timeshare back to the developer/resort is technically not an abandonment. It's a sale.The gain on the debt forgiveness should be handled separately from the sale So, the difference between the adjusted basis of the timeshare and sale price (in this case zero) is the loss (Schedule D). There is no gain on the forgiveness based on the FMV provided on the Schedule 1099A. However, as I indicated earlier there's no way the timeshare is worth the FMV indicated. Most likely it's worth zero.

Possi- I just saw your second post. It essentially says the same thing I've indicated here. I'd still advise reporting the non-deductible loss on Schedule D using the Form 8949 to prevent the receipt of an automated "matching" letter from the IRS. You have nothing to lose by adding this addtional information (even though it may not be required).