Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Loss On Timeshare Sale

Posted by taxguru on February 17, 2006

Q:

Subject: Sale of a Timeshare at a loss

Kerry, how do you treat the sale of a two week timeshare unit purchased in 2001 and sold in 2005 at a loss on your 1040 Federal Tax Return and also on your state tax (CA)?  Can you deduct the loss on Schedule D? I have received a Form 1099S.  The instruction there tells you that if the real estate is not your main home you must report it on Form 4797, and/or Schedule D (Form 1040).  CONFUSED!  Can you help, please.  Thank you. 

A:

The sale price definitely needs to be reported in order to match up with the 1099–S amount.  To leave it off completely will allow IRS and FTB to assume it to be 100% profit.

Which schedule you will need to use, as well as whether the loss is deductible, depend on how you have been using the timeshare. 

If you have been using the timeshare as a business property, and depreciating it accordingly on your business schedule, the sale will be reported on Form 4797 and the net loss, after accounting for depreciation recapture, will be deductible on Page 1 of your 1040.

If the timeshare was only used as a personal second or vacation residence, the sale needs to be shown on Schedule D, but the loss is not deductible or available to be used to offset other capital gains.  There has long been a double standard in the tax code making gains on the sale of personal use property potentially taxable, while denying any loss deductions for personal use property.

With other kinds of real estate, a case could possibly be made that it was acquired for investment purposes, making a loss deductible.  Since it has long been widely known that timeshares are the worst possible investment, with zero chance of resale profit, that wouldn’t fly in your case.

These have long been the rules.  Any competent professional tax advisor should be able to work with you on this.

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you for responding so quickly to my query re how to report the sale of a timeshare unit at a loss.  I very much appreciate it and the answer you provided. 

 

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