Before you decide if you should donate your timeshare week to charity, you should ask yourself what you are hoping to gain by making that donation. If you are just looking to get out from under your financial burden and you have a charity already in mind that you would like to help, donation may be the best decision for you. However, if you are looking for the most financial payback in terms of tax benefits or profits, it will almost never make sense to donate a timeshare week.
Let’s Look at the Numbers
Here’s what David H. McClintock, CPA has to say about the economics of selling vs. donating. “If you sell the unit, you would recover 100% of the value as sales proceeds. However, if you donate the unit, your proceeds will come from the tax savings associated with your tax deduction. Example calculation: Assume that a week will sell for $5,000, its fair market value. In order to save taxes of $5,000 on a donation, a person in a 28% tax bracket would have to list the tax return value for that timeshare week at $17,857! Thus, if you could sell your week for $5,000, you would net $5,000 before considering selling costs. But your tax savings from a donation would be only $1,400 (28% of $5,000). The price at which you can sell the unit is normally about the same "fair market value" as what your charitable deduction should be for a donation of the week.”
Fair Market Value and the IRS
You must determine fair market value when you plan to sell or donate your timeshare week. This is not the price you paid for that week, or what the current retail price is from the developer. From the IRS perspective, and how you will be taxed, fair market value is the price that a willing buyer and seller normally agree to in the marketplace. Since we are talking about the resale market, the value must be equal to or close to what you could actually sell the week for. You’ll have to compare price of other resales at your resort online at RedWeek.com to determine your value.
If the week is valued at more than $500, you must file Form 8283 with your tax return. If your value is more than $5,000, you must get a formal appraisal. Remember, you are responsible for the valuation shown on your tax return. If the IRS finds that you significantly overstated the value of your week in order to maximize your tax deduction, significant criminal and tax penalties can apply.
Bottom line is if you are trying to maximize your profits, or minimize your loss, you should sell your timeshare week. You should donate the week only if your motive is solely for charity, not for tax benefits, though there are some. Also, before making any decision, you should speak with your own accountant. You may find it helpful to take a full copy of this article with you as a starting point for questions. The complete article can be found online at RedWeek.com.