There are generally two types of timeshares that can be purchased by a taxpayer:
Even if the timeshare owner has title to a real property interest, they should be able to support that the primary intent for holding the timeshare is for investment purposes. In Dewey vs. Commissioner, the IRS did not allow §1031 tax deferral because they determined the taxpayer’s primary purpose for a two-week timeshare purchase was personal enjoyment and not for investment purposes.
As with any §1031 exchange, the taxpayer should be able to substantiate that the primary intent for holding the property was either for investment or business purposes.
There’s a simple tactic we often suggest to those that are seeking options that do not qualify for a 1031 exchange such as a timeshare, cabin or vacation home, RV, or even a boat or car payoff. In cases like this, we suggest that the exchangor utilize all sale proceeds (as opposed to forgoing the exchange and using after-tax money) to invest in a property that generates a passive monthly income. Using this method, the investor can earn a monthly income which can, in turn, be used for monthly payments on the cabin or car payment. The primary benefits to this method is the preservation of capital as well as increased after-tax income due to depreciation.
To explore this option we invite you to talk to an advisor at 1-800-872-1031 or by filling out the form below.