We received income from "renting" some weeks that we have the right to use under our Right-to-Use timeshare contract. We use a couple of weeks ourselves but rent the remainder. We purchased our original contract 20 years ago purely for our own enjoyment but have upgraded many times over the years to improve rentability and hopefully resale value. But realistically, we will never recoup what we have spent on this contract from either resale or rental. Therefore, I have assumed this should be classified as hobby income due to our continued personal use and the fact that it will never be profitable considering what we paid for the contracts. RTU means we do not own real estate, but instead own a contract giving us the right to use real estate at various resorts for a specific number of weeks for a fixed period when we pay the related usage fee for the unit. So since we don't own the property, we will not be deducting depreciation per se, but instead would deduct a pro rata amortization of the substantial upfront cost of our timeshare contract (an intangible asset) related to the week used. My questions are: (1) is hobby income characterization appropriate? (2) if so, is the income received reported on Schedule 1 Part 1, line 8j "Activity not engaged in for profit income"? (3) since the usage fee paid and the pro rata share of the upfront cost of the contract are directly associated with the week rented, I am assuming these costs are considered cost of goods sold and deducted from the gross rental income on Schedule 1, Part 1, line 8j? If I've got any of this wrong, please explain. Thank you!!!
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