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A question about capital loss on taxes

Can I deduct the loss on this timeshare?


  • Total voters
    7
  • Poll closed .

BPCguy

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Hello TUG-
I hope you can help with a capital loss question. Earlier this year I bought two timeshares resale from the resort’s HOA list. They are separately deeded and had separate closings. I used one week and put the other up for rent. I wound up selling the unit instead. Never listed it for exchange nor occupied the unit. I owned the unit for 5 months, entirely in 2017. I did not own the unit during its deeded week. No rent was ever collected.

The cost basis for the unit was $900. Costs to sell were $325. Revenue from the sale was $126. I want to take the capital loss on my 2017 taxes as a reduction of my ordinary income.
 
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VacationForever

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You need to check with you CPA instead of asking for opinion in a public forum. Opinion holds no weight when you get audited and fined by IRS for trying to cheat on taxes. This had been discussed here on TUG for what it is worth and the consensus had been a no.
 

ronparise

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If the timeshare was bought as one might buy an investment; to sell at a profit then maybe. Or if you put it into a rental operation. Perhaps. But where’s the evidence.

Do you have a history of buying and selling timeshares for capital gains or for your rental business?

if your intent when you bought this timeshares was to use it yourself, then no

And I believe a capital loss can offset capital gains not regular income. Do you have capital gains to make this worth doing

I am from the school of “when in doubt, deduct. So I might just do it and if caught pay the tax and penalty then.

But I gotta ask is a $1100 deduction that might save as much as a $400 savings worth the risk.
 

Saintsfanfl

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If you are in the business or investment of buying and selling timeshares then it would be deductible whether as a capital investment loss or as a loss on the sale of business inventory. It doesn't sound like you are doing these things as an investment or business though.

If the purpose is not business or investment related then the deduction is not allowed. The problem with trying to do it anyway is the large % loss in such a short time frame stands out. Why would someone buy real property as an investment for $1,225 to sell it only 5 months later for $126? It screams of an illegitimate deduction. Maybe it was a bad investment decision but the point is that it could cause a red flag for review which could then discover that it is not deductible. The review could also potentially discover other things on the tax return that might not be correct.

I agree with Ron that you have to ask yourself if it is worth the risk if you are not clearly engaged in an investment or business.
 

Saintsfanfl

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And I believe a capital loss can offset capital gains not regular income.

I believe you can deduct an additional $3,000 above the gains, then it can carry forward to future years. This is assuming it is a legitimate capital investment to begin with, which is extremely rare with timeshares.

For people that flip many timeshares on a regular basis the IRS prefers that they not be classified as capital investments. They have ruled in the past that mass house flippers as a business must classify the purchases and costs as inventory, and then COGS once the property is sold. For individuals the method can be one or the other because the issue is very grey but if the volume is really high a review would likely force the inventory method.
 
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