First, this is NOT for everyone. If you have a timeshare and can sell it, great! If it’s a top 5-star resort during the #1 prime week, you shouldn’t have any trouble getting some good money for it. There are ways to increase selling it and get up to 80% of what you paid, but that’s a different article. You can find that article at #1 in the Resource Box. Some high-net-worth donors and families donate money to charity family foundations for their charitable activities.
This article is for the rest of timeshare owners that want to sell, rent, give away, throw away, anything to get out of a bad situation that nothing seems to help with. You would think that willingly donating it to a worthy cause should work. If you’ve tried and been rejected, don’t feel bad. Most timeshare donations are rejected for a very good reason. The charity can’t sell them any better than you can and they don’t want to take on all the headaches of ownership you have, including the associated fees.
Let’s call a spade a spade. Some timeshares start out being great, but for some reason just don’t work out. When that happens and you find yourself on the wrong end of annual bills that go up each year and never, ever stop (even to your grand-kids by virtue of inheritance) the resorts don’t want them back. They want their money. After all, that’s why they made you such a good deal in the beginning. They knew every year forever they were going to be the receiver of a steady gravy train unless you were willing to ruin your credit, file bankruptcy, die or worse. Even then they can harass your descendants for the same reasons.
By the way, have you tried selling it for $1 on eBay yet? Didn’t work, huh? So far 3 charities have turned you down, too? Too bad. Guess what? You’re NOT stuck. There is a way out and you can actually get cash in your pocket for it.
I won’t go into all the IRS regulations covering this. Just realize I have and it’s available as an Adobe .pdf file you can read or download. It’s just way too long for this presentation. It is organized and helps make everything clear. Go to http://www.communityhealthtraining.org/IRSRegs.pdf to get it.
Here’s the short version.
The IRS says if you donate a timeshare, it’s considered real property and subject to valuation under specific guidelines. The first is that if it’s sold by or transferred by or the charity acts as an agent in the process and ultimately accepts any money for the donation, your income deduction is limited to the actual cash that was generated in the sale. Some people think, regardless of the sale price, they can claim a $5,000 donation credit. Nope, the IRS is very clear. In fact, if you the charity tells you to claim anything specific or even doesn’t give you an actual figure (which results in their claim of $0) and then sells or transfers it within 36 months of you donating it, they are required by law to send a special Form 8282 to the IRS notifying them that their actual receipt was different than what they told you it was worth and that you probably claimed the wrong amount. Guess what the IRS does when they find out you may have claimed the wrong amount?
The key here is that 36 month window. If the charity takes title and keeps it for the full 36 months, the time limit is over and what ever they get for it can’t come back to haunt you. You’re free! What does the charity have to do? First of all, they don’t make any money on the sale since there wasn’t any sale. Next, they have to contend with the normal resorts collection process which is now directed against the charity instead of you. As such, if a charity does do this, don’t begrudge them charging a service fee for taking it off your hands. There are commercial companies out there that will charge you $3,999 or more for the same service and you can’t legally claim that cost or the “loss of your investment money” according to the IRS unless you have a convincing paper trail of bills and receipts showing you tried to rent it out from the very first when you bought it. If you try such a loss claim, you’re due for an audit. Again that’s a different story.
How does this 36 month period affect you? Actually pretty strongly. The IRS says that if there is no sale to pin a value on, then they require a fall back method of valuation. There are three ways and any one, two or all three can be used. It’s your choice which ones you use. First is your original purchase price so long as current resort sale prices are in a similar range. Second is what it’s worth as a rental income property (not much so most people don’t use this). Third, what would it cost you to buy a very similar sized and located unit with about the same time (week) for it’s use. As you begin to look at these methods a question comes up. How about all those cheap timeshares selling on eBay or those listing sites?
When you donate your timeshare, it is specific. Without a sale price, you can claim up to $5,000 as a donation without having to have a licensed appraisal. However, if you are going to claim more than that, your form must be signed by a licensed appraiser and be accompanied by a professional appraisal. The appraiser is required by the IRS to provide specific information on each and every property he uses for his comparables. Here’s the direct IRS regulation: “For each comparable sale, the appraisal must include the names of the buyer and seller, the deed book and page number, the date of sale and selling price, a property description, the amount and terms of mortgages, property surveys, the assessed value, the tax rate, and the (tax) assessor’s appraised FMV. . . . Only comparable sales having the least adjustments in terms of items and/or total dollar adjustments should be considered as comparable to the donated property.” Think about this a minute. All those Internet sales can’t be used. Only sales he can get the above information on can AND the more different the comp is from the actual property the less it should be considered. If you have never dealt with an appraiser, understand they know there is a range of value they can fall in. They are savvy business people and understand that they want to please the person paying their bill so will adjust their appraisal to the end of the range that best suits their client and can be legally enforceable. You’re paying the bill. Do you want a higher or lower appraisal? The appraiser knows.
Here’s another direct IRS quote. “Unusual Market Conditions – For example, liquidation sale prices usually do not indicate the FMV. Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV.” Does that bring to mind most of those Internet and secondary market sales with really low prices?
If the appraiser must follow IRS requirements, where is he going to get most of his information? That’s right, the resort. After all, who is selling most of the units on the open market? If you have to buy a replacement, where would you be most likely to find one? The resort. So, the appraiser has to start at a price close to the resort prices. At that point he can discount the price if he feels it’s necessary but he must be reasonable in that process or he can jeopardize his license.
Now, let’s look at that $20,000 timeshare you bought and can’t use, trade, rent, sell or even give away now. It’s costing you $1,000 per year in ownership fees. If you could find a charity that would take it and hold on to it for 36 months you have some freedom. You can take a $5,000 income deduction that, with a 25% tax bracket (over $31,850 income), that’s worth $1,000 returned tax dollars in your pocket. If you paid $20,000 for it, you might want to call an appraiser in the resort area, discuss the IRS rules and regulations (see the above link) and ask a few simple questions. Once he understands you know the law, ask him what he feels he could reasonable give as an appraised value and what the appraisal costs. Let’s jet say he said he could go to $15,000 and still feel legal and it will cost you $500. With the $15,000 appraisal you’re going to get a nice $3,750 back on your taxes.
What did this ultimately cost you? Well, the appraisal was $500, if you had to pay the closing costs, they were probably another $350 to $500 and if a charity charged you a service fee of $500 to take it off your hands and hold it for 36 months your total cost ended up being $1,350 to $1,500 subtracted from your tax bonus of $3,750 leaves you with about $2,250 in your pocket after all is said and done. Oh, by the way, you no longer have that $1,000 owner’s fee facing you every year for the rest of your life AND even though 3 other charities turned you down because your timeshare couldn’t be sold for beans, one charity ended up getting Uncle Sam to pay you off for it. Not bad!
Is there a charity that will do this? Yes. If you follow the above links or contact me directly I’ll be happy to answer any questions you may have.
Dr. Ken Rich
Want to get TOP DOLLAR for your timeshare?
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