Question of Taxes on Timeshare Sale
Saturday, March 22, 2008
USA Today ran a question and answer this week in their “Personal Finance” segment that was intended to deal with an IRS tax issue. Instead, it sounded more like a ‘criminal’ matter to me.
A reader posed the following question to tax expert, Andy Mattson of Mohler, Nixon, Willams and Campbell:
“I sold my timeshare for a gross gain of $3,000. However, because of the huge commission I paid to the timeshare company for selling it, my net was a loss of $6,000. Do I have to pay capital gains on $3,000 or do I consider it a loss and not report anything?”
Wait! Set aside the matter of capital gains and taxes owed for a minute. Is this reader really saying that he or she paid a $9000 commission to sell a timeshare unit for $3000? If this was the case, then I say that the terms of this timeshare sale are a lot bigger problem than the matter of paying capital gains taxes.
Selling Timeshare through a Timeshare Broker
There are times when a timeshare owner who wants to sell timeshare needs or prefers to work with a licensed timeshare broker. The broker earns a commission when the timeshare unit or weeks sell. People who are considering selling timeshare with the assistance of a broker, should understand from the beginning what the commission rate is and of course, the rate should be clearly defined in the written agreement between the seller and the timeshare broker.
But there is simply no way that you should ever have to pay a $9000 commission on a $3000 timeshare sale – that’s why I called it ‘criminal’. If you are facing this scenario, why wouldn’t you donate your timeshare, save the sales commission, and perhaps gain a tax deduction in the process? Or consider using Sell My Timeshare NOW to help you advertise and market your timeshare resale, and handle the sales transaction yourself. Either option makes far more sense than paying 3 times more in commission than you are grossing in your timeshare sale.
Answering the Question of Capital Gains on Timeshare Sales
Now back to the matter of the capital gains owed. Mattson, the tax expert, must have interpreted the timeshare seller’s question the same way I did, because his answer was this:
“It sounds like you had to pay a commission of $9,000 on gross proceeds of $3,000. You determine your gain based upon the amount realized. Per IRS Publication 523, the amount realized equals the gross proceeds minus ‘selling expenses,’ and commissions are considered a ‘selling expense’. Therefore, you do not have a taxable gain.”
“It sounds like you had to pay a commission of $9,000 on gross proceeds of $3,000.
You determine your gain based upon the amount realized. Per IRS Publication 523, the amount realized equals the gross proceeds minus ‘selling expenses,’ and commissions are considered a ‘selling expense’.
Therefore, you do not have a taxable gain.”
What a shame this timeshare owner didn’t contact Sell My Timeshare NOW.