Cost Basis Time Share received for free or a few dollars

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557880yvi
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Joined: Wed Mar 06, 2019 3:11 pm

Cost Basis Time Share received for free or a few dollars

Post by 557880yvi » Thu Nov 07, 2019 11:24 am

Dear Bogleheads,

I received a very unexpected call from some dear friends last night. 1 year ago, an elderly parent transferred the deed from a time share week they owned to them (the son) for consideration of "$100.00". This week is in the early (shoulder) part of the spring season, right on the water on Martha's Vineyard. Not middle of summer high season but it is always the week of the Lilac Festival. They visited once but decided that this was not place they would likely return to. Between the annual maintenance fees and cost to get there (just the ferry for 2 people and car with bikes on top is about $200, never mind the cost of getting to MA in the 1st place).

They have offered this to us for "free" or for a nominal transfer amount if the Registry of Deeds requires a non-$0 value. We own other time share units (that were inherited but received the step-up cost basis and therefore have an exact $ value for basis in those should we ever sell) so understand the costs and responsibilities. They don't want to pay the 2020 fees which are due in December (2019).

Have researched IRS rules and am not clear how this might be treated. From the Registry of Deed information, it appears that his parent (parents but one now deceased) acquired the week at least 25 years ago, for consideration of paying the outstanding fees from a prior owner but the $ is not known. The complex does not have records back that far to know what the amount may have been and their parent has no idea at all what that amount was.

So would our cost basis be the consideration for the transfer - for example $100.00 or if transferred for "free" the IRS Gift rules:

https://www.irs.gov/faqs/capital-gains- ... f-home-etc

Question
What is the basis of property received as a gift?
Answer
To figure out the basis of property you receive as a gift, you must know three amounts:

1. The adjusted cost basis to the donor just before the donor made the gift to you.
2. The fair market value (FMV) at the time the donor made the gift.
3. The amount of any gift tax paid on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.


The twist to this and what I cannot find is that the FMV of this unit (or other similar ones in the complex) is extremely difficult to determine because most have been owned by the original owners since inception around 1990 with very, very few sales. And units have been passed on to children/grandchildren. So not sure how FMV today might be determined. When I asked our friends what they were considering as their cost basis they didn't even know about the concept!!

Any insight would be greatly appreciated!! Thank you so much in advance.

Gill
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Re: Cost Basis Time Share received for free or a few dollars

Post by Gill » Thu Nov 07, 2019 11:47 am

Is this really a gift or is it a sale for nominal consideration? I would think it's the latter in which case your basis will be whatever costs you incur with the transfer. On another note, are you sure you want to accept this "gift" or whatever it is? Most people would love to give away their time shares but can't because no one will accept them.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

HomeStretch
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Re: Cost Basis Time Share received for free or a few dollars

Post by HomeStretch » Thu Nov 07, 2019 12:05 pm

As you have other timeshares, it sounds like you understand the issues surrounding them.

It sounds like you haven’t seen the property and winter is not an ideal time to do so. I doubt your friend has other buyers lined up for an immediate sale. If you are interested, consider asking to use their week next year at the property to see if you want to buy it. If so, buy it. If not, give him something for the week vacation housing if it merits it.

Either way, your friend has allowed very little time for your buying decision and he should pay the 2020 fee when due in December 2019. You can offer to reimburse him for a pro-rated share if you buy the timeshare. His sense of urgency doesn’t mean you have to respond immediately.

runner3081
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Re: Cost Basis Time Share received for free or a few dollars

Post by runner3081 » Thu Nov 07, 2019 12:19 pm

Run, don't walk. This "dear" friend probably thinks you are a sucker.

Topic Author
557880yvi
Posts: 85
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Re: Cost Basis Time Share received for free or a few dollars

Post by 557880yvi » Thu Nov 07, 2019 2:43 pm

Thank you for the quick responses! I try to be brief with posts but never seem to anticipate all the great points/questions my fellow Bogleheads come up with. So I should have added the following if it makes a difference:

1. We have stayed at this resort several times as a guest of our friends' parent in this unit and the same week, when they were no longer able to travel. It is lovely and in amazing location. So we are quite familiar with the resort and location. So no concerns there. We live in MA so much easier to get to MV for us than anyone else in their family or anyone they know.

2. They hadn't thought about the additional costs outside of the maintenance fee: transportation to and from MA then MV, membership in an Exchange company like Interval Int'l or REI and they own a vacation home near their residence which they visit most weekends. They are getting ready to retire and think the additional annual costs seemed overwhelming when they budgeted for living off of retirement funds. We can afford this. So don't have any sense of them trying to dump this. The Resort takes back units at no cost if someone wants to walk away and has a waiting list of people who want to buy one.

3. And for what it's worth, the property that the Obama's just bought on MV is only a few minutes away from the resort!

Was really trying to understand the potential tax implications in the future should we try to sell by figuring out how the cost basis would be determined (and it may be simply, our costs to acquire). Was not sure if would be deemed a gift if they just transferred the deed to us.

Thanks very much!!

not4me
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Re: Cost Basis Time Share received for free or a few dollars

Post by not4me » Thu Nov 07, 2019 3:10 pm

557880yvi wrote:
Thu Nov 07, 2019 11:24 am
1 year ago, an elderly parent transferred the deed from a time share week they owned to them (the son) for consideration of "$100.00".

The twist to this and what I cannot find is that the FMV of this unit (or other similar ones in the complex) is extremely difficult to determine because most have been owned by the original owners since inception around 1990 with very, very few sales.
I'm not sure the FMV is that critical to you, but might be more to your friend. It sounds as if they got this not as a gift, but a sale. Meaning their original cost basis would be $100..correct? The FMV is really only important to you if less than or equal to the adjusted cost basis. So, if you get this as a gift, you'd get their adjusted cost basis of $100 OR you could but with nominal consideration for $100 & your cost basis would be the same. I'm sure there are other costs involved that would shift that a bit.

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FIREchief
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Re: Cost Basis Time Share received for free or a few dollars

Post by FIREchief » Thu Nov 07, 2019 3:31 pm

Gill wrote:
Thu Nov 07, 2019 11:47 am
On another note, are you sure you want to accept this "gift" or whatever it is? Most people would love to give away their time shares but can't because no one will accept them.
Gill
^^^this!!! I've never owned a time share (and never will), but I've heard that there are only two escape routes. A) find some sucker to legally take over your obligations, B) Die.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Cost Basis Time Share received for free or a few dollars

Post by FIREchief » Thu Nov 07, 2019 3:34 pm

runner3081 wrote:
Thu Nov 07, 2019 12:19 pm
Run, don't walk. This "dear" friend probably thinks you are a sucker.
Took the words right out of my mouth keyboard. 8-) Perhaps the OP should tell this "friend" that they'll consider it if the friend is willing to pay them about $20K to take it off their hands. Possibly still not a wise scenario, but it may be the best way to make it go away. That said, I'm sure a simple and clear "thanks, but no thanks" is likely the best approach.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Ping Pong
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Re: Cost Basis Time Share received for free or a few dollars

Post by Ping Pong » Thu Nov 07, 2019 3:45 pm

Another thing you could do is offer to pay their annual maintenance fee while you use the resort. This solves their concern about the hefty fee for the time being. Several years down the road when you’re tired of it, you can end the arrangement.

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FIREchief
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Re: Cost Basis Time Share received for free or a few dollars

Post by FIREchief » Thu Nov 07, 2019 4:05 pm

Ping Pong wrote:
Thu Nov 07, 2019 3:45 pm
Another thing you could do is offer to pay their annual maintenance fee while you use the resort. This solves their concern about the hefty fee for the time being. Several years down the road when you’re tired of it, you can end the arrangement.
That's a great suggestion! 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Topic Author
557880yvi
Posts: 85
Joined: Wed Mar 06, 2019 3:11 pm

Re: Cost Basis Time Share received for free or a few dollars

Post by 557880yvi » Thu Nov 07, 2019 4:25 pm

That is a great suggestion. Many thanks to all.

Topic Author
557880yvi
Posts: 85
Joined: Wed Mar 06, 2019 3:11 pm

Re: Cost Basis Time Share received for free or a few dollars

Post by 557880yvi » Fri Nov 08, 2019 2:38 pm

UPDATE: Not accepting the free offer to take over our friends' timeshare. In part thanks to your many thoughtful responses and because I was unable to obtain copies of the financials, 2020 budget or board minutes (only available to owners and our friends didn't have them or said that they would not know what to do with them if they did!) Would never add a time share or buy in a condo or co-op without a thorough review of the financials.

I did however, get a list from the resort that they maintain for free for owners, of weeks available for sale. The unit they offered me is one of the most desirable on property (location and size) and my friends will probably be able to sell this and get a little money out of it. So they now have a current owner who wants another of this same week so they can have a unit for family to stay in! Hope it works out for them.

Think this will be a win-win and we won't have another time share fee to pay!

Many thanks to everyone, finding Bogleheads has been wonderful!

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