1031 and buying DVC

[canwegosoon]

Has anyone ever looked into buying DVC on a 1031...I have rental property that I MIGHT sell(not 100% sure) and I do not want to pay capital gains if I can figure out a way to mabe better use of my money. So I am considering other property and then DVC also popped up. Is this possible or just down right "carbs talking". Thanks (I was thinking about renting the points to myself and family members only-no commercial renting)

 

[Chuck S]

Wouldn't the DVC have to be purchased by a corporation, in order to rent it to yourself? And if so, have to be documented for tax purposes...wouldn't that make "commercial renting?"

 

[Lew]

I know just enough about 1031 exchange to get me into trouble...

I do know that the buyer of your rental property would have to purchase the DVC membership so they could exchange it for your property. IMHO, trading a DVC membership for rental property would probably be far from a like exchange in the eyes of the IRS.

Check with your CPA to be sure.

 

[Figment2]

Since a 1031 is also known as a like-kind exchange, I doubt that the IRS would agree that a DVC timeshare is the same as a rental property.

Unfortunately like Lew, I know just enough to be dangerous.

Cyn

 

[StacyPop]

Either way, you have to use a qualified intermediary to complete the exchange. You should check with them first. They will be able to tell you if it will qualify. And by the way, a timeshare is considered a real estate investment, which is why you receive a deed. The IRS could disqualify it, but the intermediary would probably not do the transaction then. I would check with them. There are some reputible ones you can just call and ask questions and they are very knowlegeable.

 

[macman752]

An intermediary is indeed necessary. One does not have to do a direct exchange as Lew indicated.

You could sell the rental with the proceeds being held on your behalf by the intermediary. You would then identify the replacement property (DVC). The intermediary would disburse the funds at closing.

There are strict timelines which must be followed. 1031 exchanges are best handled by experienced persons. I've used a local intermediary and my real estate attorney when making an exchange.

That said, I don't know if DVC will pass muster with the IRS as a like kind exchange. The fact that you don't own the property, as it eventually reverts back to DVD, may disqualify the exchange.

 

[Machta]

This is a *very* interesting question. If you do talk to a qualified intermediary, would you *please* let us know what they say? I'm a commercial real estate broker, and I never thought about this before!

 

[DisneyConvert]

I have a rental property which probably spits out $5~$6k in income each year, so I am wondering what number of DVC points I would have to "sell" each year (while paying for their "maintenance" of course) to match that income.

 

[kend58]

The original question was around a 1031 like - kind - exchange treatment for an aquisition of DVC points - Did that question ever get answered?
If so can someone please share the info?

I have a rental property which probably spits out $5~$6k in income each year, so I am wondering what number of DVC points I would have to "sell" each year (while paying for their "maintenance" of course) to match that income.

DisneyConvert At the currently prevailing per pt rates I think around 2,800 to 3,000 and that volume might be enough to end up on Disneys commercial activity radar IMHO it would demonstrate a clear pattern of commercial actovoty to be consistently renting that number of points year after year to an ever changing mix of renters. My other concern would be that by the time the cost recovery had been accomplished and you were into actual gain territory on such an investment the remaing life of the lease would be causing the value to decay to quickly DVC is a leased interest not a perpetual ownership structure

 

[crisi]

Renting to yourself and your family can't be done. You can't run a business, sell things to yourself and your relatives, and use the business as a tax write off. Doesn't pass the relationship test. When you get audited, all writeoffs and the 1031 will be disallowed and you'll owe penalties and interest.

(as with all tax or legal advice, consult your own tax/legal professional).

 

[CarolMN]

Doesn't the POS specifically state that DVC is not an investment? That it shouldn't be purchased with the intent of acquiring an income?

This plan sounds like a recipe for disaster to me.

Like Crisi, I think you need to consult the experts.

 

[mprewitt]

I have a rental property which probably spits out $5~$6k in income each year, so I am wondering what number of DVC points I would have to "sell" each year (while paying for their "maintenance" of course) to match that income.

Commercial renting is specifically prohibited by Disney. The POS states:

Use of Vacation Homes and recreational facilities for commercial purposes or any purposes other than the personal use described in this Declaration is expressly prohibited. "Commercial Purposes" includes a pattern of rental activity or other occupancy by an Owner that the Board, in its reasonable discretion, could conclude constitutes a commercial enterprise or practice.

 

[Dean]

Doesn't the POS specifically state that DVC is not an investment? That it shouldn't be purchased with the intent of acquiring an income?

This plan sounds like a recipe for disaster to me.

Like Crisi, I think you need to consult the experts.

It does but it's a warning to a potential buyer what not to expect, not a rule as to what one can do. It's mandated by the State of FL to be included in the POS and stems from the practice of salespeople selling with visions of high rental returns or capital appreciation.

 

[crisi]

It does but it's a warning to a potential buyer what not to expect, not a rule as to what one can do. It's mandated by the State of FL to be included in the POS and stems from the practice of salespeople selling with visions of high rental returns or capital appreciation.

However, its evidence that DVC is not an investment class property, and therefore isn't a "like exchange" of other investment property for the purposes of Section 1031.

 

[Dean]

However, its evidence that DVC is not an investment class property, and therefore isn't a "like exchange" of other investment property for the purposes of Section 1031.

I don't believe timeshares can be counted in a 1031 but I don't think this statement would have any effect one way or another. It's not a legal statement of status but a statement of expectation or in this case, lack of.

 

[crisi]

I don't believe timeshares can be counted in a 1031 but I don't think this statement would have any effect one way or another. It's not a legal statement of status but a statement of expectation or in this case, lack of.

My guess is that the IRS would, in tax court, use it to support status (they'd use it before it got to court as well, to convince you just to settle). After all, the IRS is as interested in the expectation that it is an "investment" as much as the legal status. Many things don't have a legal status until they make a case off of it.

 

[Corinne]

Since a 1031 is also known as a like-kind exchange, I doubt that the IRS would agree that a DVC timeshare is the same as a rental property.

My thoughts exactly.