Rental Income

I have a perpetual membership "right to use" property in Mexico. I was told since I don't own anything but the right to use a week, that I don't have to report the income to the IRS (if I rent it). The broker says there is nothing to report. She doesnt report it and I don't report it. I have been trying to find proof of this online and cannot find anything that state this. She said she has been doing rentals for mexico for many many years and has never had to report the income because the renters doesn't own the condo just the right to use. I don't want to just take her word for it and get in trouble with the IRS. I would like to have proof to back it up. Can comeone please help me find the answers I need.

Too good to be true?

What do they say about if it sounds too good to be true? Come on now, the law is very clear. It's rental income (someone is paying you for the use of something you have an interest in), report it as such. If you someone tells you otherwise, get the supporting documentation in writing!

That broker does not appear to be too smart telling people she rents her property and has never had to report its income??? That is a person whose advice you need to stay away from IMHO.

My advice, report it. If for no other reason, you will be able to sleep better at night.

frenchieinme

Yes, it's taxable. The tax code has some language to the effect that all income - from whatever source derived - of U.S. citizens is taxable in the U.S. unless there is a specific exemption for such income. There is no exception in this case.

Further, the first part of Income Tax Regulations §1.61-8 states, "Gross income includes rentals received or accrued for the occupancy of real estate or the use of personal property." Nowhere in those regulations is there any requirement that you own the underlying property in order for the rent to be taxable.

Bottom line: If you want to know the proper tax treatment, ask a tax person, not a broker. Further, if the broker is in the U.S., she is violating the law by not reporting the rental income of her clients to the IRS. If she is in Mexico, she most likely - as indicated here - doesn't know the law.

To see what deductions are allowable against the rent, see the Income tax article in the TUG Advice section.

Who is the BROKER/Company?

I would like to know who your Broker is, as they obviously don't know what they are talking about and sounds like they are probably not a real Broker or one TUG members should stay away from (or maybe should be reported to the IRS if they aren't reporting the income off you). I would like to know who/what company they are with to make sure others don't get and somehow believe this advise.

Regards,
AKGOLFER

Remember, that with a TS you can't deduct the cost or MF of the TS BUT if you rent it you can deduct those items ( not sure how much) so with your MF and cost to buy the RTU, your rental income make not the cost of the TS and you'll not need to pay any moneis on the income but you'll have to report it.

But some people may choose to say it was a wash and not bother reporting the income or taking the deductions. But that isn't my advice.

Bill4728 said:

...your rental income make not the cost of the TS and you'll not need to pay any moneis on the income but you'll have to report it.

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I assume you intended to say something like, "Your rental income might be less than your allowable deductions, so you might not have any tax to pay on that income, but you are still supposed to report it."

That's correct. Further, if the rental income comes through a broker or the resort, you'll probably get a copy of the 1099 notifying the IRS of the income you received. Thus, it's a good idea to report the income, even if there is no tax to pay.

We sometimes rent the lock off while staying in the suite. Might one deduct a fraction of the MF (say 1/4 to 1/3) from the lock off rental income?

Thanks

Yes, that's a reasonable approach.

Has the two week exception (also known as the Augusta Masters Week) been removed? Once upon a time, any rental income for a rental of less than or equal to two weeks did not have to be reported.

Cheers

No, the two week exception hasn't been removed.

(That exception provides that if you rent for less than 15 days in a year property that you use for residential purposes, the rental income is not taxable.)

However, that exception applies only is the property is used by the owner(s) for residential purposes for at least 15 days in a year. If you view the ownership as the single timeshare week by a single owner, that owner doesn't meet the 15 days of personal residential use test. Thus, the rental income would be taxable.

Alternatively, you could argue that the unit (all 52 weeks) should be taken as a whole, meaning that there would almost certainly be more than 15 days of personal use, possibly qualifying for the exception. But wait! If you take that position, you also have to consider that some of those other 51 owners of that unit also rented their weeks, almost certainly exceeding the 14-day limit on rental income.

Bottom line: The rental income is taxable.

Thanks, never used the two week deal but I vaguely recalled there was one.

Cheers

Income tax related question

We own a points system. We purchased resale Sept. 2006. in 2007 we have rented in and rented out points to other owners thereby making a little profit. The purchase price of our timeshare plus the maint. fees exceed our profit. We also use the timeshare for our own enjoyment.

This is a rather unusual form or income and I have no idea who to ask about how to report income taxes. Is the purchase price deductible? maint. fees? Of course the fees to rent in from other owners would be deductible.

Thank you for any input.
Cyndie

Yes, the rent is taxable. See the TUG Advice link in my first post for a discussion of allowable deductions.

You really should speak to an accountant or tax advisor knowledable in US taxes and income out of the country ie: Mexico. All income is supposed to be reported of course but there is a law where you can make so much money out of country and not pay tax on it, report it yes, but not pay tax on it, now I am not sure if that applies only to those who live out of country or not, but I think not. So anyway, though you may not have to pay any taxes, you do have to report, so find yourself a knowledable accountant or tax person to advise you.

Those out-of-country rules do not apply to U.S. citizens. With a very few exceptions that are not applicable here, U.S. citizens are taxable on all of their worldwide income.

pammex said:

All income is supposed to be reported of course but there is a law where you can make so much money out of country and not pay tax on it, report it yes, but not pay tax on it, now I am not sure if that applies only to those who live out of country or not, but I think not.

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It sounds like you are thinking of the "foreign earned income exclusion." But that only applies to "earned" income, such as wages or salaries, and not to rental or investment income.

I believe there is a tax law that states a person can make up to a certain amount of income out of country, must be reported but is not taxed. I am referring to US citizens, so definately something to look further in to if you so desire.

Oops just read post on "foreign earned income exclusion", that may be it. I am pretty sure my accountant said something about renting out timeshare units out of US and an exemption, will have to check further, maybe there is a loop hole or something. f course, everyone's situation would be different as well.

No loophole. mtwingcpa's post is accurate.

The income exclusion is only for certain salary and similar earned income (not rents, dividends, interest or other passive income) and doesn't apply unless the individual becomes a bona fide resident of another country. The exclusion applies only to income earned outside the U.S. while a resident of that other country.

If your accountant has suggested that, as a resident of the U.S., you can exclude rental income from a foreign country, it's probably time to get a new accountant!!

Okay Dave, well that is it, the last post clarified my confusion, I am a US citizen but I reside in Mexico, as a permanent resident, so guess my situation would be different. Sorry if I confused anyone with my posts.

See I love this site, I learn more and more and more each day.....

Hey I just noted Dave, I am a former person from Masachusetts as well....How is the weather? Hubby is there now in Danvers, he says lots of snow!

Have a nice X-Mas!

pammex said:

Okay Dave, well that is it, the last post clarified my confusion, I am a US citizen but I reside in Mexico, as a permanent resident, so guess my situation would be different.

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I think you're missing Dave's point. The key word is earned.

Dave M said:

The income exclusion is only for certain salary and similar earned income (not rents, dividends, interest or other passive income) and doesn't apply unless the individual becomes a bona fide resident of another country.

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Dave, do you have clients like this? I know people only believe what they want to believe but really...

Jim is correct. Rental income is not earned income under the Internal Revenue Code and, thus, rental income would never be excludible from a U.S. citizen's U.S. taxable income. There may be some allowable credits against U.S. tax that would be imposed, if the individual has to pay tax on the rental income in another country (e.g., Mexico).