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Timeshare Exit Strategies: Should You Donate Your Timeshare?

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It is not until an individual starts to evaluate their options for canceling their timeshare, that they become truly aware of how binding and inflexible their contract is.  In the current economy, many households have found that a timeshare is an expense that simply does not work with their other financial priorities.   In more urgent cases, unemployment or critical illness are factors that prompt families to look for a fast way to get out of their contract.

The option of donating a timeshare is frequently discussed online, and even promised as a solution by timeshare sellers.  It’s promoted as an expensive option to cancel your timeshare.  But when you evaluate the legal costs of transferring ownership, there are few benefits to donating your timeshare, and even fewer benefits to the charity.

Fact: Charities Do Not Always Want Them

Donating a timeshare to charitable organizations in the past, was a viable option, as charities had multiple resources available to earn a profit from the donation.  In better economic times, a charity could use the property for contests and promotions, as an award in draws for fundraising.  However, in the current economy, charities are under increased operational and budgetary constraints which can make acceptance of a timeshare donation more of a financial liability, than a benefit.

It is very difficult to find a charitable organization willing to accept the donation of a charity, given the low net profit from the donation that they will receive.  When you consider that the charity is also aware of the potential of increased maintenance fees, it is simply a risk most registered charities are unwilling to take.

Fact: Hidden Costs Make It an Expensive Option

Timeshare owners often see a charitable donation of their timeshare to a charity as a solution, with an altruistic bonus.  First, they can successfully give their timeshare away, and transfer ownership, which removes them from the high-cost contract, membership and maintenance fees.  The second favorable aspect is that they can “feel good” about their timeshare investment being allocated to a worthwhile charity.  Ideally, the situation is a “win” for both parties.

Did you know that most charitable organizations that do accept timeshares (there are very few that are open to the donation) hire consultants or real estate lawyers to manage the transaction?  For insurance and cost saving purposes, charities often do not have the time or resources to evaluate the terms of the timeshare contract, nor can they assess the value of it, without incurring an expense.   Owners that decide to donate a timeshare can be shocked by the additional fees charged by the real estate lawyer or consultant who manages the donations.

From our review of client experiences, the transfer can cost on average $2,500 USD or more for legal costs.  The responsibility for this transfer cost falls exclusively on the person donating the timeshare. Other hidden costs include appraisal of the market value (not initial investment), and settlement of outstanding timeshare fees, if payment for membership or maintenance fees are in arrears.

Per the IRS tax guidelines, there are only a few organizations that meet standards as a qualified appraiser for real estate donations.   Six approved organizations that can value your timeshare for charitable donation (and income tax deduction) are:

Source: Web November 2016, Nolo.com

It is important for timeshare owners to know that if the average list price of your timeshare is $50, that may be the approved market valuation, and net benefit as a tax deduction for your effort.  And there are other tax considerations to weigh before donating your timeshare.

Fact: There May Be Tax Complications

Some timeshare resale or donation organizations promise that the full value of the timeshare, including the initial front-end cost of buying, will result in a 100% tax deduction for the owner, during the year of donation.  The Internal Revenue Service requires that charities report on the fair market evaluation of the timeshare, which has nothing to do with the initial cost paid by the consumer.

For instance, if your timeshare cost $14,000 at the beginning of your contract, you as an owner, may value the timeshare at a minimum of $14,000 USD, or anticipate that the timeshare has appreciated in value, over the course of your ownership.  A deduction that size would be a definite benefit as a tax deduction, but the IRS does not value a timeshare donation in those terms.

The charitable organization is required to report on the current market value of the timeshare.  That amount is valuated by the number of timeshares available in the resort, and by the average sale price and listing price of similar timeshares within the same development.  Regardless of how much you paid for your timeshare, if there are other owners selling their timeshare for $450, the fair market price of your timeshare could be that low (or lower).  It’s not uncommon to see multiple suites or condominiums listed for as little as $1 on Craigslist or EBay, which is also factored into the value of your donation.

When the consumer adds up the legal fees associated with timeshare ownership transfer, minus the real value of the tax deduction, the result is often a net loss for timeshare owners.   If affordability is a factor, this is not a cost saving path for most owners, and on average, after costs, a charity may benefit an average of less than $500 for the donation.

Fraudulent resale companies and middlemen have also over valued a timeshare to solicit the donation, prompting consumers to claim the purchase price as the fair market value.   Consumers need to know that this kind of large donation increases the risk of personal tax auditing, as timeshares are known by the IRS to be overvalued, and tax laws regarding valuation restrictions have changed greatly in the past ten years.

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A timeshare contract is as legally binding as a mortgage, which is frustrating to owners who run into additional costs and complications when they wish to cancel their timeshare. Our team provides a legal, transparent method of evaluating your contract, and representing your needs directly to the resort or developer, to resolve your timeshare contract.   Get American Consumer Credit working for you.