If we sell our Timeshare in Mexico what is our tax liability?

[marctu]

A timeshare or vacation home is considered a personal capital asset and the sale is reported on Schedule D Capital Gains or Losses. A gain on such a sale is reportable income. If you incurred a loss on the sale, the IRS doesn't allow you to deduct the loss.  Knowing what I know about timeshares, I am assuming it will be a loss though I am hoping that it is a gain.  If you have had the timeshare for more then a year then it would be a long-term capital gain.  If less then a year then it would be a short-term capital gain.

Thanks again for the question @Sedutra   

All the best,

Marc 

Employee Tax Expert

[Sedutra]

We have owned it for over 15 years (if not more) so what difference would that make to how much we would owe?  It will likely be a loss of income upon the sale.

[Sedutra]

If we sell it for $40K what might we expect as a tax liability?  (It's paid for)

[marctu]

I am going to combine both your follow ups into one answer.  The key part you write here is this: "It will likely be a loss of income upon the sale."  So if it is a loss as you wrote, there is no income tax impact.    

The question really is how much did you pay for it, to test the question of is a loss.   If you sell it for $40K and you paid $42K it is a loss.   If you sell it for $40K and you paid $30K then it is a gain.  Since you held it 15 years, it is a long-term gain.  

The Long-term capital gains tax rates for the 2024 tax year are as follows:

FILING STATUS	0% RATE	15% RATE	20% RATE
Source: Internal Revenue Service
Single	Up to $47,025	$47,026 – $518,900	Over $518,900
Married filing jointly	Up to $94,050	$94,051 – $583,750	Over $583,750
Married filing separately	Up to $47,025	$47,026 – $291,850	Over $291,850
Head of household	Up to $63,000	$63,001 – $551,350	Over $551,350

In addition, those capital gains may be subject to the Net Investment Tax, an additional levy of 3.8 percent if the taxpayer’s income is above certain amounts. The income threshold depends on the filer’s status.

(individual, married filing jointly, etc.) and are not adjusted for inflation.

The IRS statutory income thresholds are as follows (Based upon Modified Adjusted Gross Income):

• Married filing jointly — $250,000
• Married filing separately — $125,000
• Single or head of household — $200,000
• Qualifying widow(er) — $250,000

Thanks again for the follow up questions @Sedutra    

All the best,

Marc 

Employee Tax Expert

[Sedutra]

So if we are married filing jointly and it is under the $94K and change we would not owe on that loss?  Forgive me it's just confusing.

[Sedutra]

My husband said we paid $19K 15 years ago. So if we sell it for $40K now we will end up paying....what approximately? I just want to be sure to plan ahead.

[marctu]

Assuming the $19K is accurate.  That is a gain of $21K.   Per the tables above that is all 15% long-term capital gains.   Depending upon when you sell the property, you may want to make a third or fourth quarter estimated tax payment for (21K*15%).   

Thanks again for the follow up question  @Sedutra 

All the best,

Marc 

Employee Tax Expert

[Sedutra]

Pay $21K in taxes?  We would be better off dropping the selling price to $19K if that's the case. Is that what you are saying?

[Sedutra]

I'm just asking for clarification. So we would end up paying $21K in taxes if we sell at $40K?

[marctu]

The capital gain is 21K.  The tax is 15% of that.   Math is pretty easy from there.   

[Sedutra]

I agree but bare with me as I have difficulty processing information. So we would be looking at about $3,150 upon a sale at $40K

[marctu]

Yes.   That is again assuming that the $19K purchase price is correct.