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.
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.
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.
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