Donate your Timeshare
Timeshare as a Charitable Donation
Is your timeshare not working out for you? Have you tried to sell and can’t? If you decide to donate timeshare, find out the keys to getting the most out of it for a much higher tax return to you in CASH. The details for this article are located at: http://www.communityhealthtraining.org/Timeshare/Donation and IRS Regulations.pdf. Several IRS publications and regulations are quoted there.
A timeshare (TS) is considered real property or real estate (the same thing) unless it is only a long term lease as in some countries or a contract for points not using a deed. As real property, the first consideration is if it was bought originally for personal use or purely for rental purposes. The IRS is very strict on this issue. Don’t try to claim your purchase price as an investment loss unless you have a strong paper trial with receipts showing a long history of trying to rent your timeshare out and reporting any income derived from it. At best you will only get partial credit for the years you actually have such receipts. All other years will be considered personal use and you have to apportion investment versus personal use based on actual years with proof of renting versus years held. You’ll get nailed by the IRS for it is you claim anything different.
If you donate timeshare to a charity/nonprofit organization (NPO) you have to ask the NPO two very important questions: 1.) Do you, the NPO, actually take title to it; and 2.) If yes, then how long do you hold title before you sell it to someone else? The IRS says that if the NPO transfers title to someone else within 36 months, the amount of cash actually received is the income deduction the owner can claim. So, if you paid $20,000 and they sell it for $500 you can only claim $500 as your deduction. If you’re in a 25% tax bracket you get a $125 tax return. If they don’t take title your deduction is ONLY the actual cash received. Here’s the IRS quote from Form 8282 (which includes real estate).
Purpose of Form Donee organizations use Form 8282 to report information to the IRS and donors about dispositions of certain charitable deduction property made within 3 years after the donor contributed the property. This form is essentially a trigger to an audit notifying the IRS that you probably claimed to much in a deduction and owe them more money due to the charity selling the TS within 36 months for less than the credit they gave you.
If title is taken by the NPO but not resold for 36 months then FMV must be determined differently. The IRS says: 1. The FMV is determined by the best applicable process of: a.) The original sale price, b.) The value based on it’s income generation (usually doesn’t apply to TSs), or c.) The cost to buy a specific close replacement to the original.
2. Also, the sale is to be based on an arms-length transaction between a seller and a buyer, neither of which are needing to either sell or buy.
3. A maximum credit of $5,000 can be given by an NPO without a certified appraisal. This will be dealt with in another article.
So long as it’s not sold within 36 months, there’s no sale to limit your donation claim. Form 8283 states that if you claim more than $250 you must use it. If you claim more than $5,000 you must have an appraisal created and signed by a licensed appraiser.
Here’s a problem with this process. The NPO is a business like any other and has bills it must pay. They arrange for donations in order to ultimately receive cash. The NPO gets nothing until they sell it and DO take on all the ownership responsibilities you had. So, why should they accept your TS unless they intend to sell it?
Reality is that they really don’t have any better way to resell or even rent most TSs than the actual owner does. For that reason most charities have either a “black list” of TSs they won’t accept or have clauses like the following to prevent their potential liability – “No property will be accepted for donation if the market analysis concludes that the property can not be sold for a profit within a three week period.” If your property is one of the highest valued and prestigious resorts like Wyndham, Disney, Hyatt, or Sheraton or in a very high demand, minimal availability area, it seldom meets this criteria. No matter how beautiful and wonderful it is try a simple test. Try to sell it on eBay for $100 to see if anyone buys it. This is where a lot of NPO TSs end up through brokers they use. AND you get stuck with the IRS Form 8282.
When you are contacting charities check into what they do with TS donations. The vast majority sell them and yours may not sell. A very few charities retain them and rent them out for income. However, like you, they have to get more rent than the ownership fees are to make any cash so they are very picky in what they accept. A rare exception can be found a couple of places where the charity chooses to fight the resort at their own credit crunch game and will take your position in title to do this. However, for them to make a profit they must charge a fee for their services. That fee can range from $500 to $5,000 depending on the company. The good thing is that they can take almost any TS that can be deeded that is free and clear and transferable to their corporate name – regardless of how run down or decrepit it is.
Paying someone to take your TS sounds terrible, but if you’ve tried everything else, it may be your final option. What is your freedom worth? How much does it cost you every year to hold and hope for a sale? If you’ve reached the point of willingly paying someone to take your TS and do it NOW, make sure it’s a legitimate charity that can give you the $5,000 income deduction and NOT resell it within 36 months. If you make more than about $31,000 as a single person or $62,000 as a married couple, that equates to a tax refund in cash to you of $1,250.
If you’re interested in what can be done visit www.communityhealthtraining.org/Timeshares . One extra note. They don’t charge you a dime for anything until they actually take title. You never pay them directly. All finances are handled through a qualified and experienced closing company of YOUR choice.
Dr. Ken Rich SeniorDirector@CommunityHealthTraining.org
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