IRS Regulations on Timeshare Donation
Since there is so much wrong on the Internet and some timeshare forums regarding getting rid of a timeshare by timeshare donation I've purposely restricted this to specific IRS quotes. The process is specific and Fair Market Value (FMV) has a specific legal definition to the IRS.
(The following verbiage has been taken almost exclusively directly from IRS documents) Internal Revenue Service Review of Appraisals - Real Estate
Cost or Selling Price of the Donated Property The cost of the property to you or the actual selling price received by the qualified organization may be the best indication of its FMV. . .
1. Comparable Sales "Selection of Comparable Sales. . . the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. The degree of similarity must be close enough so that this selling price would have been given consideration by reasonably well-informed buyers or sellers of the property." (Publication 561 -Determining the Value of Donated Property)
Unusual Market Conditions or example, liquidation sale prices usually do not indicate the FMV. Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV. (Publication 561 - Determining the Value of Donated Property)
2. Capitalization of Income (Doesn't apply)
3. Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. When the replacement cost method is applied to improved realty, the land and improvements are valued separately.
Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. (Publication 561 - Determining the Value of Donated Property)
Form 8283 Generally, if the claimed deduction for an item of donated property is more than $5,000, you must attach Form 8283 to your tax return and complete Section B.
Form 8282 - Purpose of Form Donee organizations use Form 8282 to report information to the IRS and donors about dispositions of certain charitable deduction property made within 3 years after the donor contributed the property. (Form 8282 - Donee Information Return (Sale, Exchange, or Other Disposition of Donated Property)
Penalty 20 percent penalty. The penalty is 20 percent of the underpayment of tax related to the overstatement if: * The value or adjusted basis claimed on the return is 200 percent or more of the correct amount, AND (emphasis added) * You underpaid your tax by more than $5,000 because of the overstatement. 40 percent penalty. The penalty is 40 percent, if: * The value or adjusted basis claimed on the return is 400 percent or more of the correct amount, AND (emphasis added) * You underpaid your tax by more than $5,000 because of the overstatement."
1. If the property is sold for cash, the sale price must determine the FMV of the timeshare donation.
2. Based on Form 8282, the time limit for this sale extends to 36 months from the date of donation. Thereafter, it doesn't apply to valuation.
3. Only a licensed and qualified appraiser can give you a donated timeshare FMV. Your depressed sale circumstances has no bearing on the deduction you can claim.
4. A timeshare donation value from $500 to $5,000 can be granted if there is no specific sale price for the donated timeshare.
5. If the title is held for more than 36 months, the $5,000 non-appraisal timeshare donation credit can be taken with little risk of audit. The deduction is granted immediately and only subject to change if it is later sold for cash within 36 months of the timeshare donation date.
6. Finally, What if you do face an audit? Unless the error caused you to write off such a large amount that you actually underpaid your taxes by $5,000 based on the overstatement of value alone, you are no subject to a penalty.
Dr. Ken Rich is the majority holder and director of IHLPro, Inc., a small conglomerate dealing with business consultation, investments, and small manufacturing. He spends some of his free time on the board of Community Health Training, Inc., a non-profit organization (NPO) that accepts timeshare title as a direct donation instead of reselling it. Details on the process can be found at http://www.communityhealthtraining.org/Timeshares/. He can be contacted at SeniorDirector@CommunityHealthTraining.org.
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