Jan 31

Can You Donate a Timeshare and Reap the Tax Benefits?

A few years ago, the idea of donating unwanted timeshares took the world by storm—offering victims of the timeshare trap an alternative to ever-escalating maintenance fees and liabilities. Donating an unwanted timeshare seemed like the perfect solution to escape the timeshare burden AND recoup a tax benefit at the same time. Unfortunately, what appeared too good to be true was, of course, too good to be true.

Back in 2013, we scoured the experts and wrote about the problems that timeshare owners face when attempting to donate a timeshare here. We found that AARP closely investigated the donation process and uncovered many hidden costs with timeshare “donations,” potential tax problems, as well as new arenas for scams (see below). In addition, financial guru Clark Howard echoed these sentiments and issued a warning about fraudulent charities claiming to accept timeshare donations for an upfront fee.

Now, the United States Department of Justice has identified an even bigger issue that will affect many timeshare owners seeking to donate their unwanted timeshare interests. In late 2015, the Justice Department filed suit to crack down on tax fraud deductions for timeshare donations because of severe repeated overvaluation of the donation. You can read the full bulletin here.

As timeshare fraud has continued to grow, we decided to revisit timeshare donations and re-examine the process, the benefits, and the pitfalls.

We know how difficult it can be for a timeshare owner to sell their interest. Timeshares are worth very little, if anything at all, and it can be impossible to find a buyer who is willing to take on a contract that will inevitably cost them hundreds, even thousands of dollars in annual fees that constantly increase each year—as evidenced by the many timeshares listed for sale for only $1 on CraigsList and eBay that have not sold. Unlike old clothing, toys, or furniture, that are often donated because they may have very little value to sell, because of the required annual fees, timeshares actually carry negative value which can make them exceptionally difficult to even donate. As a result, many charities refuse to accept gifts of timeshares strictly because of the annual costs of timeshare ownership.

The practicality for timeshare donations is nearly as limited as those for timeshare resales. With donations, there are even more restrictions than with resales. The timeshare must be fully paid off and have no outstanding maintenance fees or special assessments. Generally, the idea is that the timeshare must have some value or be able to be sold in order to be donated.

The few organizations that accept timeshare donations often utilize a third party to receive and process timeshares, and sometimes require the owner to pay the charity or third party a large sum to cover all or part of the future maintenance fees, opening the door to possible scam artists and vultures. During the process, the owner must transfer title to the third party processor, along with an upfront fee, hoping to write off the donation as a tax deduction. Fraudulent charities claim that you can write off the full purchase price of the timeshare as a donation on taxes to incentivize owners to pay the upfront costs, but this could not be farther from the truth.

Tax law prohibits a deduction for donating the use of a timeshare to charity, so the only deduction that can be claimed is the ownership of the timeshare. The actual charitable deduction that can be claimed is the fair market value of the timeshare at the time of the gift, minus any depreciation deductions. To clarify: the fair market value at the time of the gift is what an owner would have been able to SELL his/her timeshare for on the date of the donation. Since, as we discussed above, timeshares hold an inherent negative value, most timeshares will not have ANY fair market value to deduct, and the owner will receive no tax benefit at all.

Those timeshares that may have some value may qualify for a donation, but require additional steps before a write off can be claimed. If the fair market value of a timeshare exceeds $500, a special form must be filed along with annual taxes. Furthermore, if the fair market value of the timeshare were to exceed $5,000, it must be officially appraised by an IRS-approved “qualified appraiser,” whose fee must be covered in full by the timeshare owner. Once the appraisal is complete, additional forms and signatures must be filed, and must include certain details about the timeshare itself. Because these forms can be fairly technical and have specified due dates and procedures, owners should consult with a dedicated tax attorney to assist them throughout the process.

If an owner gets this far in the donation process, then yes, the timeshare may be claimed as a deduction. However, owners must be especially cautious about fraud and scam artists claiming to be charitable organizations that will accept timeshare donations for a fee to cover the annual fees. Like timeshare resale schemes, charitable donation scams exist and prey upon timeshare owners looking to donate their timeshares. Owners should be aware that if a charity claims an owner can write off the full purchase price or a large amount for a timeshare, they may be a fraudulent organization. In addition, owners should be especially weary of any charity that says they will accept a timeshare donation but require a large upfront fee to cover annual costs. Scam artists rely on upfront fees—do not succumb to their tricks and promises.

Timeshare donations may be a solution for a select few timeshare owners, but they also can be risky and provide little to no benefit to the owner. If you need help getting out of a timeshare contract (if you can not sell or donate a timeshare, you may need to cancel a timeshare contract), contact The Abrams Firm at (360) 918-8196 for a free consultation. Our low flat-rate fees are 100% contingent upon the successful divestment of your timeshare to end ownership and all associated financial obligations. We are Consumer Protection Attorneys that ensure your protection by NEVER charging ANY upfront fees.