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Skyslate
Level 1

Timeshares - DVC

I am selling Disney Vacation Club contract purchased several years ago and using the funds to purchase a new DVC contract.   Do I have to pay taxes on the profit (yes, a substantial profit) on the original contract if I am purchasing another to replace it?  I will pay an extra $6000 for the new contract but it has almost double the points. 

7 Replies
Critter-3
Level 15

Timeshares - DVC

The facilitator of the timeshare should make this an exchange situation so it  is not a true sale and thus not taxable.  

rjs
Level 15
Level 15

Timeshares - DVC

If you sell something at a profit, you have to pay tax on the profit. It doesn't matter what you do with the money.


I'm not sure you could do what Critter-3 suggested. A transaction that the company calls an exchange might just be considered a sale and purchase for tax purposes. Consult a tax lawyer if you want to try that route.


A long time ago there was a provision in the tax law that you could defer (not avoid) paying tax on the profit from selling your primary home if you used the money to buy a new home. But that provision was eliminated in 1997, and it applied only to your own home.

 

Critter-3
Level 15

Timeshares - DVC

If it is done "in house" then I have exchanged weeks for other weeks several times getting better weeks or properties within  the same company and none of these were sales to be reported but actually upgrading your position.  Check with the facilitator of the exchange to see if they will issue a 1099-S. 

Opus 17
Level 15

Timeshares - DVC

You don't actually own real estate, just a contract for services.

 

Suppose you paid $5000 for the right to use certain resorts on certain weeks.  You sell that contract on the secondary market for $8000, and buy a new contract to use a better resort on better weeks for $14,000.  Because it happened on the secondary market, you liquidated your first arrangement for a $3000 capital gain, and you have a new arrangement in which your basis is $14,000.

 

However, if you are doing this in-house, then the company is allowing you to upgrade from your first arrangement to your second arrangement for an additional payment of $6000.  You don't really know what the trade-in value of the first arrangement is as you aren't really selling anything.  Just because they tell you that "this is a $14,000 contract but we'll let you upgrade for only $6000 more instead of $9000 more" doesn't make the $3000 "profit" a "real" figure in the financial sense.  If you do it in-house, I don't think you are selling anything, you are simply changing the conditions of your arrangement and paying another $6000.  If you ever sold the new arrangement on the open market, your cost basis would be $11,000 (what you paid) instead of $14,000 (the alleged value).

 

Someone may point out that this is not how a used car trade-in would be handled (if you had a car that appreciated in value) but that's because a car is a physical object that you can have title to and the car has one owner at a time.  What you "own" with a time share is permission to use certain facilities, and the person offering the contract is the only person who provides the services.  If they agree to provide better facilities in return for more money, you haven't "sold" anything or realized a gain in the previous contract.  (In my opinion.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Skyslate
Level 1

Timeshares - DVC

In the Disney Vacation Club system,  a buyer actually receives a deed for a certain percentage of the resort that they are buying in .  DVC is different from a conventional time share that you buy certain weeks of the year.  

Critter-3
Level 15

Timeshares - DVC

Actually I also  have deeds but I did not do a sell and then a buy  ...  I simply  traded my deed for another deed thru my timeshare company ... as such  by doing a "upgrade trade"    I did not have to report a sale.  

rjs
Level 15
Level 15

Timeshares - DVC

"Upgrade" sounds a lot different from "selling" and "purchase." If you just put in more money and get an upgraded or enhanced contract, you didn't sell anything. The original question said "selling . . . and using the funds to purchase." That sure sounds like a sale, especially if any money actually passes through your hands, even momentarily. If at any point there are "proceeds," and you have discretion about what to do with the proceeds, it looks very much like a sale. I guess you have to pin down the exact nature of the transaction. And as Critter-3 said earlier, you have to pin down whether or how it will be reported to the IRS. I still recommend consulting with a lawyer.

 

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