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Tax.appeal.168
Tax.appeal.168, Accountant
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Experience:  Tax Accountant
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my husband and i purchased a vacation club membership in the

Resolved Question:

my husband and i purchased a vacation club membership in the Dominican Republic with unlimited weeks of use for a service fee. The resort encourages members to "resell" their weeks and earn a profit above the service fee they charge us. We have started an LLC to do this and I want to have the expenses of the membership club (we put cash down and financed the balance, so we have monthly loan payments) to be considered expenses of the business. How can we do that? How do we have the initial investment we made in the vacation club membership a business expense?
Submitted: 1 year ago.
Category: Finance
Expert:  Megan C replied 1 year ago.
Thank you for your question, and thanks for using JustAnswer.com. In order to write off the cost of your initial investment, you would need to recognize the expense over the life of your membership. For example, if your membership is for five years, you would expense 1/5 of the membership fee every year.

On top of that, you would need to allocate the portion of the expense that is personal and business. If you use 1/4 of the weeks as personal weeks, then you can only write off the business portion of the expense, or 3/4 of the total expense.

Please let me know if you need further assistance. Thanks again for using JustAnswer.com and have a happy, and safe, 2013.

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Customer: replied 1 year ago.

The membership is a lifetime membership and is in the names of my husband, myself and our two children, not in the business' name. If I take the initial investment and and allocate it over say, 30 years - how do I record the expense to the business since there is no actual expense incurred?


 


For the monthly payments on the loan, can I make them out of the business account even though it is a personal loan?

Expert:  Megan C replied 1 year ago.
I'm sorry, I am not 100% certain how to handle this. I have done some research, and I cannot find a similar circumstance. I will see if another expert can assist.

Thanks
Expert:  Tax.appeal.168 replied 1 year ago.
Hello and THANK YOU for contacting JUST ANSWER. My goal is to help YOU make YOUR life, a little...LESS TAXING.

Different Expert here. I'm sorry to inform you that the IRS does NOT allow a business deduction for vacation club memberships. SEE BELOW:

Club dues and membership fees. Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.

Exception. The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities.
  • Boards of trade.

  • Business leagues.

  • Chambers of commerce.

  • Civic or public service organizations.

  • Professional organizations such as bar associations and medical associations.

  • Real estate boards.

  • Trade associations.

Even though the description does not specifically mention resorts, I feel comfortable saying that a resort would fall under the description provided.

 

REFERENCE SOURCE:

 

http://www.irs.gov/publications/p535/ch11.html#en_US_2011_publink1000209188

 

IRS Pub 535

 

Please let me know if I canbe of further assistance to you regarding this matter.

 

Thank you again for using JUST ANSWER.

Customer: replied 1 year ago.

thanks for the reference above. Since having a membership in the club is the only way we can have vacation weeks to sell, it does not seem to be the same type of thing as the clubs referred to in your email. The vacation club is more like a timeshare than a club - does that change your answer?

Expert:  Tax.appeal.168 replied 1 year ago.
Hello again,

Exchange fees, membership fees or dues paid to exchange companies and expenditures paid in connection with your annual occupancy are treated as personal expenditures. Thus, they are not deductible.

REFERENCE SOURCE:

http://www.tstoday.com/members/magazine/issue58/tax%20deductions.pdf

You can refer to the 2nd page of the document.

-----------------------------------------------

Please let me know if this clarifies matters for you. Thank you again for using JUST ANSWER.
Customer: replied 1 year ago.

I am not trying to deduct them as personal deductions. It seems that if the business needs this ownership in order to earn its only income there must be some way for the cost of the ownership to be deductible from the business. would it be different if the business owned the membership rather than us as individuals?

Expert:  Tax.appeal.168 replied 1 year ago.
If the timeshare meets the qualifications to be considered rental-use property, some expenses can be deducted. However, I have not come across any information that indicates the membership fees are a deductible expense. SEE BELOW:

Under Section 280A, vacation properties, including timeshare interests, which are rented at FMV to an unrelated party for 15 days or more per year and are not used for personal purposes for more than the greater of: (1) 14 days per year or (2) 10% of the total days rented, are rental-use property for tax purposes. If the above criteria are met, then all rental income from the property must be included in the taxpayer's gross income for the year and all eligible expenses attributable to the taxpayer's rental activity (including interest, taxes, utilities, repairs, maintenance, and depreciation) may be taken as deductions from gross income, even if a loss from the rental activity results for the year.

REFERENCE SOURCE:

http://www.andysirkin.com/andysirkin/Resource/Time%20Share%20Tax%20Treatment.pdf

Refer to the section marked *313 for more detailed information.
Customer: replied 1 year ago.

Thanks - we are getting closer. We don't pay membership fees. We purchased a lifetime membership for a one-time fee which gives us the rights to occupy certain vacation properties for unlimited days for our lifetime. We financed this one-time fee over 10 years. So we made a down payment and are financing the balance. I do believe that we will meet the qualifications of rental property as outlined above. So if our LLC passes down income to us as partners, this would be rental income to use and we could deduct eligible rental property expenses against the LLC income when it is passed to us - is this correct?

Expert:  Tax.appeal.168 replied 1 year ago.
Hello again,

Please allow me to research this matter a bit further. I will get back with you as soon as I can. Thank you for your patience.
Expert:  Tax.appeal.168 replied 1 year ago.
Thank you for your patience. Per the document found at the following link;http://homeguides.sfgate.com/tax-advantages-owning-time-share-7919.html, the following applies;

If the purpose of the timeshare is strictly as a rental and the owner does not use the timeshare for personal use, then several expenses may be claimed as tax deductions. Some include the cost to advertise the rental, commissions paid to rent it out, interest, insurance and rent paid for the timeshare. Repairs, utility expenses, local transportation and travel expenses related to renting it may all be claimed.

-----------------------------------------------

Q: So if our LLC passes down income to us as partners, this would be rental income to use and we could deduct eligible rental property expenses against the LLC income when it is passed to us - is this correct?

A: Yes, this is correct.
Tax.appeal.168, Accountant
Category: Finance
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