Want to Get Rid of a Worthless Timeshare?

You own a timeshare, don't use it, have tried and failed to sell it, the resort won't take it back, and even charities you contacted rejected it. What do you do?

Before you even try, if there is any debt or outstanding bills on the timeshare, no one will take those over from you. Don't even bother trying to sell by taking over the payments. If people aren't rude to say it, they will at least know you're a fool.

Please understand we are only taking about the final recourse following other failed attempts. If you haven't tried them, do that first. Try selling it on eBay for $1 and see if you can get rid of it that way. For your protection you should use a licensed title company at a cost of $300 to $500.

When you're dying of thirst in a desert, vultures begin to circle closer. The resorts won't take it back or help. They threaten to send you to collection and ruin your credit. You start getting calls from resellers willing to help you get it sold if you pay them the right price first. There are even several companies like TimeshareRelief and similar, possibly franchised, operations that MAY take it off your hands for a $3,995 to $4,995 fee.

Here's what you need to know in this process. You actually do have a couple of options.

There is a rumor of people using quit claim deeds to deed it back to the resort or to some other poor soul. Don't believe it. It doesn't work unless the recipient wants it. All they have to do is send a letter to the county recorder to negate the deed filing and it's back in your lap again.

First, unfortunately, you can simply stop paying and let the resort do their worst. They will ultimately send you to collections. A negative report will be made on your credit history. You can submit a 100 word statement to the credit bureau giving your side of why you didn't pay. However, there is a problem. If the resort doesn't bother to pay for and go through the legal hassle of a foreclosure, some resorts will continue to bill you each year. That means each year becomes a new bill, is sent to collection, and shows up on your credit report as a new ding. Even if that's not legal, you'll have to fight it.

Second, some people, and even many resellers, advise you to write it off as a bad debt. The IRS will check very closely to make sure you have a thorough and legal paper trail with receipts, copies of bills, advertising copy, etc. to show that you have actively tried to rent it out each year. Any year you didn't, you used it, let a friend use it, or banked the week for later use will be rejected as an investment. You have to show the IRS it was bought for the purpose of investment, not personal use. Anybody that tells you differently hasn't bothered to read IRS Publication 544 "Sale and Other Dispositions of Assets". The next point is the IRS restricts how you write off a loss over time. They limit you to $3,000 per year until the amount of loss is covered. What you get from the IRS is the tax bracket percentage you're in x $3,000 each year (I.e. 15% x $3,000 = $450).

Third, you can donate it to a charity. Most charities really don't take title from you. They continue to have you hold it in your name and try to sell it through brokers they know. If they do, they keep the cash and you get the credit. The IRS is very clear on this issue. You can NOT take off the cost of the timeshare as your donation. Only the actual cash received is your donation. If all they get is $300, that's your donation credit. However, if the charity does take title and holds it for 3 years, they can give you a legal $5,000 donation credit without an appraisal. If you want more than that you will need to pay an appraiser. However, that appraiser is supposed to use the IRS definition - "FMV is the price a willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell." If you're being hard pressed to sell, are you a willing, knowledgeable seller Not having to sell? Next, the appraiser must . . "In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. These include:
The cost or selling price of the item,
Sales of comparable properties,
Replacement cost, and
Opinions of experts."
If the charity takes title and it's not sold for 3 years, there is no "cost of selling price". The vast majority (95+%) of comparable properties are those sold at the resort, not reseller sites. If you were to replace it you'd have to go back to the resort and pay their price. Making sure you inform the appraiser of the IRS regulations can help in getting a higher appraisal.

The problem with this donation process is the charity. Most don't want to be stuck with receiving bills for the next three years while you get the tax breaks described. In fact, they won't take title at all. There are a few rare charities that will do just that, Community Health Training, Inc. Is one. Since they don't make any money on the timeshare itself, they charge a $500 service fee to accept it, but you are finally free from it. Because they aren't concerned with resell value, they take almost everything. Make sure you only work with a licensed title company that will hold your money in escrow to give back to you in case it doesn't go through.

Based on the above IRS regulations, if you can donate it to a charity that will hold it for 3 years, you can take a $5,000 donation income deduction without a problem. At the least that is worth your tax bracket x $5,000 (i.e. 15% x $5,000 = $750). If you have a cost, it will be partially covered. If you get a higher appraisal or are in a higher tax bracket you can actually end up with a positive cash return.

Your final choices end up being paying to get rid of it or letting it ruin your credit. As to how your pay to get rid of it, a little searching for the right charity can save you a whole lot of money.