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Timeshare Donation and the IRS

This article was written by one of our directors as part of the Wikipedia page on Timeshares

This page will give you an understanding of IRS regulations. On another page we took direct quotes from IRS publications, Forms and Regulations, put them in understandable order, then summarized them for easy understanding. If you wish to read that ordered and summarized document, click here.

Many owners find they eventually want to sell their timeshare and find it's not the investment they expected. In fact, it's often difficult to resell a timeshare on the secondary market. Unfortunately, forgetting about it or trying to throw it away ends up having the resort coming after you and your credit if they want to get their money. Very few resorts will take back a timeshare, even when it's free and clear, but do check and consider it as an option if they do. There are lots of ways to do it on your own from listing on classified ad sites like Craigslist.com, lots of companies willing to help you, and other ways to dispose of it such as eBay or donating it to a nonprofit organization. The discussion here is focused on donation of timeshares in the United States. Please remember we are dealing with what is considered real property (real estate) here, and not with personal property (clothing, art, books, etc.). Also, timeshares that are NOT deeded fall under contract law and are more difficult to deal with so all the discussion here will deal only with deeded timeshares. You can find more information at the IRS site - type in the keyword search "Instruction.

First, make sure you understand what you timeshare may be worth on the secondary market if you try to sell it yourself. A good reference to actual sold prices versus what they were listed for is found at Timeshareadventures.com. Checking with the county recorder where your timeshare is located is another method, although this may not get you the actual prices secondary sales sold for. A local appraiser dealing with timeshares in that locale can help you as well.

Next, decide how you want to do the transaction and how fast you want it completed. Many nonprofit organizations (NPOs) will take your timeshare but there are different ways they do this and it's important you understand what you are really doing. The examples here are for reference and not suggestive of what company you should use.

The two basic methods of taking your timeshare is to either set up something whereby the timeshare will be sold on a cash basis and have the donor continue to hold it until that sale is ready to proceed or have the NPO take title ASAP and let you out of the ownership position without a delay.

The first method will take as long as it takes to find a buyer and can be shortened with a much lower price or lengthened with a higher hold out price. There are a couple of factors involved here. First is whether your timeshare is sellable or not. Many NPOs have a black list of resorts they won't accept. make sure yours is NOT on such a list . The other considerations will be discussed in the IRS section. This method can be described in different ways, "delayed closing", "authorized agent", "double closing", "conversion", etc. but they all end up with the delay and an established sale price as a result of the process .

The second is a direct title transfer ASAP to the NPO such as us. This process get you out of the timeshare usually faster but has it's own concerns.

The key to which method you use should be based on the IRS regulations concerning your donation. Without understanding these issues you can face an audit, fines and formidable problems following your donation.

1. There are multiple levels of donation amounts that are dealt with differently.

  • A claimed donation of less than $500 can generally be claimed with minimal documentation and does NOT require a Form 8283 - Noncash Charitable Contributions.
  • A claimed contribution between $500 and $5,000 requires Form 8283 which must be signed
    by the NPO as having accepted the timeshare, but it doesn't require an appraisal.
  • A claimed contribution greater than $5,000 requires a licensed appraisal be provided
    by a licensed appraiser AND the appraiser MUST sign the Form 8283.

2. The timing of your donation and it's transfer from the NPO to someone else is critical. It determine how Fair Market Value (FMV) is determined. According to the IRS, ''"FMV is the price a willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell."'' Notice it doesn't say anything about the speed, circumstances or who the buyer or seller are. This can be an important issue in valuation to an appraiser.

  • An immediate sale is considered conclusive evidence that your timeshare was only worth the amount received. Therefore, if you owned a $20,000 timeshare and to get out of it quick, a fast sale by the NPO could net you a sale price and donation credit of $2,000, but that's all you can claim.
  • If the NPO transfers the timeshare to someone else within 36 months, They must notify you AND the IRS separately of any difference in their original valuation credit they gave you (the NPO gives you a thank you letter or receipt stating their estimate of value of your donation). This is done on Form 8282 Donee Information Return and can result in your oweing back taxes if the amount is less than the donation credit you originally took.
  • If the NPO delays any transfer for more than 36 months, there is no requirement of filing a Form 8282 Donee Information Return and the consequences to you are gone, unless there was some other form of fraud on your return.

3. What does it cost you? That's important, especially when you consider the up front costs, donation credit consequences and release from ongoing ownership expenses.

  • Many NPOs charge you nothing, provide all the necessary paperwork and can give you up to $5,000 in donation credit without triggering the appraisal. In a 25% tax bracket that ends up getting you $1,250 back on your tax return. The NPO sells it for whatever they can get (let's say $2,000) and keeps the cash. Here's the problem. If they do sell it for $2,000 anytime within the 36 month window, they must notify you of the lower sale price and you must return $750 back to the IRS for a net cash to you of $500. You might want to sell it on your own and donate the cash.
  • Some NPOs charge you a service fee but your still get the same deduction credit. You just have to deduct the initial costs from your expected return to determine what you end up with. There are some commercial companies that will do the same thing, but generally charge a much higher fee to take title from you and you get NO credit. Again, if that 36-month window is breached you can be liable for the above consequences.
  • A NPO that takes and holds title for a minimum of 36 months receives nothing for your donation until after that time has passed if they can sell it then. In that case, such NPOs usually charge an upfront service fee. Here you don't have to worry about the sale price as the valuation on your timeshare. You now fall under the IRS guidelines for either safely claiming the $5,000 donation credit or having to get an appraiser if you want more. If we go back to that $20,000 timeshare and you have done you homework, you might find that a truer value, and one you could probably get from an appraiser is closer to $10,000. If you can hold out to sell it for that, great. If you can't and are considering donating it, then consider what it costs you up front versus what ends up in your pocket. in the same 25% tax bracket you end up with $2,500 minus the service fee, closing costs, and appraisers fee. Examples of such fees would be $500, $200, and $300 respectively. You would end up with about $1,500 in the end.

The idea of donating your timeshare to the organization you want is great. Unfortunately, they may not want it. Regardless of how you decide to donate, understand and research the IRS laws that apply and determine your risks and rewards for different methods of donating.

Another Bright Idea - Claim it as an Investment Loss
Actually this isn't as great an idea as it sounds. The IRS has some pretty strict regulations to determine whether your timeshare was for personal use or for business use. If you can't prove rental intent with a track record of bills and receipts, they will view it as a personal use property and you can take NO loss for it no matter how your get rid of it.
Read the details here.

 

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