Membership in boatominium an asset?

[jdc001]

I have owned a "membership" in an incorporated association known as a boatominum.  It gives me the right to use one particular wet boat slip.  I have used this for my own vessel for years, however, during the past several years I have rented the slip, declared the income and the expenses (dues, assessments, dredging costs, etc).  I now have sold the membership.  My question is whether the "membership" is an "asset" and if so, is the difference between the original cost and the sales price considered a "capital gain".  Associated with this, should it be considered an asset, what type of costs over the years that were paid separately (such as dredging assessments) or various costs that form the budget for the boatominium, which are split up and charged to members as "monthly dues"are considered costs to be added to the "basis" (my original cost of the membership? 

[Bsch4477]

Read the discussion below. https://ttlc.intuit.com/community/tax-credits-deductions/discussion/how-do-i-enter-the-sale-of-a-boa...

[jdc001]

I have read the info referenced, however, this refers to a "boat slip".   My sale was of a "membership",  not a boat slip.  It is effectively like owning a membership in a swim club, where it give you the right to use the pool.   You pay $5000 for the membership and sell it for $10,000.   Would that be a capital gain?  It is not a tangible asset.

[Bsch4477]

It is an asset subject to capital gains much like a country club membership. 

[Opus 17]

I will accept @Bsch4477 's assessment that this is an asset (I don't know),

but I do want to point out that if this was an asset, you have several new problems.

1. Some of your carrying costs may have been items to add to the cost bass and depreciate, NOT take as expenses.  (And of course, any item you expensed, even if it was improper, can't also be used to increase your cost basis since that would be double dipping.  You have to correct the expenses in order to capitalize your costs.)

2. You should have been depreciating the asset.  It would enter into service at either your cost basis or its fair market value at the time, whichever was lower, and then be depreciated over 39  15 years (corrected timeline). 

3. You now must include depreciation recapture tax to recapture the depreciation you took or could have taken even if you didn't take it.   Any part of your gain that is due to depreciation is taxed as ordinary income, then additional gain may be eligible as a long term capital gain.

4. And of course, some of your carrying costs from before it was a business asset may be includable in your basis as well, if they could be classified as improvements, but not repairs, maintenance or other expenses that are not improvements.  (And I have no idea if dredging is maintenance or an improvement.  I suspect it is mostly maintenance if it is maintaining the channel.  It might be an improvement if it was opening, widening or deepening the channel.)

You need to talk to a tax pro about this. 

[jdc001]

Thanks for everyone's input.  This is a complicated issue.  Although I owned the membership for about 30 years, I only rented the slip associated with it for the last five years or so and declared income and expenses.  Someone mentioned elsewhere that if I had not rented the slip this would not be an asset to be capitalized.  Not sure if that is true or not.  The analogy was that if you owned a 1962 Austin Healy for 4O years and paid $3000 for it back then, even though you sold it for $60k today, the $57k would not be a gain because you did not rent the automobile.  Conversely, if you bought a vehicle a couple years ago at $60,000 then rented it for two years and declared income and expenses, when you sell it at a $20k loss, this would actually be a loss applicable to your taxes.   The key is that you used the vehicle as a rental, whereas the Austin Healey was for pleasure only.   Thoughts on all this?

[Opus 17]

Property sold for a gain is always taxable, whether held for personal use or business use.  Think about stocks that increase in value, gold coins, collectible baseball cards, and yes, even antique cars.  That this particular bit of property is intangible doesn't change that.  Business use means that if you sell for a loss, you can take a tax deduction.  You can't take a deductible loss on personal property.  And, when calculating gain or loss on business property, you must account for and recapture any depreciation that you took or could have taken. 

[jdc001]

Definitely some inequities in the system.  Stock, a personal investment in most cases, that is, not business, is taxed on gain and losses go against gain, either short or long term, however, a personal automobile is treated differently, even if you feel the value of the automobile will go up over time, such as the Austin Healey.  You are taxed on gain, but not allowed loss.  Don't you just love this system we have!?  In case of a car it would be better set it on fire and call it a casualty loss than to sell it in some cases. 

[Opus 17]

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@jdc001 wrote:

Definitely some inequities in the system.  Stock, a personal investment in most cases, that is, not business, is taxed on gain and losses go against gain, either short or long term, however, a personal automobile is treated differently, even if you feel the value of the automobile will go up over time, such as the Austin Healey.  You are taxed on gain, but not allowed loss.  Don't you just love this system we have!?  In case of a car it would be better set it on fire and call it a casualty loss than to sell it in some cases. 

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That is very silly.  If you torch the Austin, you have a personal loss of $3000 which is not deductible, or you get an insurance payment which is a crime.  If you sell it for $40,000, you net $34,000 after the capital gains tax, and don't have to change your wardrobe to an orange jumpsuit.

I don't know the history of why personal capital losses are not deductible, but it's been that way for decades.  However, remember that these laws apply to "property" and property is anything you can have a defined ownership interest in.  If you could deduct capital losses on personal property, you could buy a Brooks Brothers suit for $1000, wear it for a few years, then sell it on eBay for $10 and deduct a $990 loss, making everything you buy (that you don't consume) essentially free.