Reprinted By Permission - Copyright
Boulder Daily Camera
Making Money Matter
Enid Ablowitz

Vacation Properties as Gifts

Some head for the slopes.  Others head for the sand and sea. Vacations symbolize R&R, adventure, romance, and increasingly, presentations touting the virtues of interval ownership, also known as timeshares. Owning a year-round vacation property has the appeal of anytime use. Timeshares have appeal too: they cost far less than full-time ownership and can be far less hassle.

GIFTS OF USE:  Since by definition a vacation property is not your primary residence, you may feel inclined to let others use your property on occasion.  In fact, you may even consider giving that use to a charitable organization to help them raise money. Be aware.

Let’s suppose you own a vacation condo and you decide to make a gift of a week’s use to your favorite non-profit, knowing there are likely to be generous bids at their upcoming fundraising auction.  It turns out the bidder’s use of the property is deemed by the IRS to be the homeowner’s personal use and there is no charitable deduction. In addition, if you treat your condo as an income property, personally using it for just the allowable 14 days a year, the bidder’s use can negate your business deductions! And by the way, the bidder is not entitled to a charitable contribution either, because their use of the property is the benefit they receive for their donation.  

This tax treatment is also true in the case of a timeshare:  neither a gift of use nor the auction purchase would generate a charitable deduction for either the donor or the bidder.

However, since tax savings are not the primary reason for making a charitable gift, if the personal use restriction is not a factor, you might still consider converting a gift of ‘time’ to a gift of ‘cash’  by providing this often highly valued fundraising opportunity to your favorite non-profit. 

GIFTS OF OWNERSHIP:  Real estate, including vacation property, has long been used as a way to make a significant charitable gift, but can you make a charitable gift of a timeshare?  The answer is, “yes, but….”

As with most gifts of real estate, there are some complexities like clear title and mortgages. With timeshare ownership, a major factor is the mandatory obligation to pay recurring monthly maintenance, tax, and use fees. That means that the gift has strings attached and the recipient of the gift must pay or lose the property.   

Many charitable organizations are not in a position to accept such gifts with strings.  They don’t have the funds or the board authorization to invest their cash flow to meet the obligations of ownership, even though the eventual sale of the timeshare may ultimately yield a return on their investment. The unknown time to liquidate the property combined with the time value of money may be unacceptable risk factors.

However, as Debra Blum observed in the February 9, 2006 issue of the Chronicle of Philanthropy, brokers are springing up who are interested in helping donors and charitable organizations with timeshare re-sales. With nearly 4 million time-share owners in the US, the gift potential is significant for donors and charitable organizations. Two companies were mentioned that conduct their businesses on-line:  Donate for a Cause and Sell My Timeshare Now.  Of course not every property is a candidate for a gift.  One broker in Ms. Blum’s article was quoted as saying, “we’re not going to take a March week in Minnesota at a 25-year old resort.” 

For donors to claim charitable deductions for gifts of timeshares, appraisals may be necessary to authenticate fair market value.  Current IRS regulations stipulate that such appraisals are required to substantiate gifts of timeshares valued over $5000.  For non-profits, the prudent course of action is to have gift acceptance policies in place and the capacity to handle the legal and financial implications before you agree to a gift with strings. 

With due diligence and charitable intent, you can share your bounty, and turn an underutilized or outgrown getaway into a meaningful contribution that can make someone’s burden lighter or provide bootstrapping opportunities.  Non-profits can turn time into money and money into significant impact. 

This information is educational in nature and should not be construed as legal or tax advice.