Open Forum

Recently, there has been an increasing number of sales involving "timeshares," leading to the question of whether the sale of the "rights" associated with a timeshare or "fractional ownership" falls under FIRPTA regulations, after all, one is not selling real estate itself, but merely the rights to occupy a property for a few weeks each year.

Timeshare is an interest in U.S. Real Property (USRPI) subject to FIRPTA, as is a lease interest in USRPI. FIRPTA Withholding Requirements
When an NRA sells a timeshare week, FIRPTA mandates 15% withholding on the gross sale price, not net gain. This is the buyer's responsibility, using Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons). For example, on a $20,000 timeshare sale, $3,000 is withheld, even if sold at a loss. The seller can file Form 1040NR to claim a refund if no tax is due, requiring an Individual Taxpayer Identification Number (ITIN).
Research suggests timeshares, whether deeded (fractional ownership) or right-to-use (leasehold/license), are consistently treated as U.S. real property interests. For instance, Timeshares and FIRPTA: What Foreign Investors Need to Know states, "Even Timeshares Are Subject to FIRPTA… they are considered U.S. real property interests and subject to withholding just like traditional real estate."
Rights to Timeshare Week and FIRPTA Applicability
Timeshare week rights typically include the right to use the property for a specific week, potentially rent it out, or exchange it via programs like RCI or Interval International. The question is whether any of these rights might not be subject to FIRPTA. The evidence leans toward all standard rights being subject, as they are tied to the real property interest.
•  Deeded Timeshares: These confer fractional ownership, clearly a U.S. real property interest under FIRPTA, per Timeshare: What It Is, How It Works, and Types of Ownership, which notes, "Shared-deeded ownership gives you a percentage of the physical property."
•  Right-to-Use Timeshares: These involve leaseholds or licenses, also considered U.S. real property interests. The Meaning of a U.S. Real Property Interest Under FIRPTA defines interests to include "leaseholds of land or improvements thereon," encompassing right-to-use timeshares.
Membership rights, like access to timeshare associations or exchange programs, seem likely tied to the real property interest, thus subject to FIRPTA.

No IRS rulings specifically exempt such rights, as seen in LB&I directive on timeshare issue, which focuses on compliance but doesn't mention exemptions for membership rights.

Have questions? Let me know!

Hi Mary,

Good information! I think it's important to remind everyone that timeshares don't qualify for the buyer residency exception. Since a person can only occupy the property a few days or weeks per year, it doesn't meet the 50% rule. 

Recently, there has been an increasing number of sales involving "timeshares," leading to the question of whether the sale of the "rights" associated with a timeshare or "fractional ownership" falls under FIRPTA regulations, after all, one is not selling real estate itself, but merely the rights to occupy a property for a few weeks each year.

Timeshare is an interest in U.S. Real Property (USRPI) subject to FIRPTA, as is a lease interest in USRPI. FIRPTA Withholding Requirements
When an NRA sells a timeshare week, FIRPTA mandates 15% withholding on the gross sale price, not net gain. This is the buyer's responsibility, using Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons). For example, on a $20,000 timeshare sale, $3,000 is withheld, even if sold at a loss. The seller can file Form 1040NR to claim a refund if no tax is due, requiring an Individual Taxpayer Identification Number (ITIN).
Research suggests timeshares, whether deeded (fractional ownership) or right-to-use (leasehold/license), are consistently treated as U.S. real property interests. For instance, Timeshares and FIRPTA: What Foreign Investors Need to Know states, "Even Timeshares Are Subject to FIRPTA… they are considered U.S. real property interests and subject to withholding just like traditional real estate."
Rights to Timeshare Week and FIRPTA Applicability
Timeshare week rights typically include the right to use the property for a specific week, potentially rent it out, or exchange it via programs like RCI or Interval International. The question is whether any of these rights might not be subject to FIRPTA. The evidence leans toward all standard rights being subject, as they are tied to the real property interest.
•  Deeded Timeshares: These confer fractional ownership, clearly a U.S. real property interest under FIRPTA, per Timeshare: What It Is, How It Works, and Types of Ownership, which notes, "Shared-deeded ownership gives you a percentage of the physical property."
•  Right-to-Use Timeshares: These involve leaseholds or licenses, also considered U.S. real property interests. The Meaning of a U.S. Real Property Interest Under FIRPTA defines interests to include "leaseholds of land or improvements thereon," encompassing right-to-use timeshares.
Membership rights, like access to timeshare associations or exchange programs, seem likely tied to the real property interest, thus subject to FIRPTA.

No IRS rulings specifically exempt such rights, as seen in LB&I directive on timeshare issue, which focuses on compliance but doesn't mention exemptions for membership rights.

Have questions? Let me know!