What Are The Tax Implications Of Owning Timeshare

By Author: Ivan Cuxeva Jr
Total Articles: 782
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Many time timeshare investors treat the investment as a tax free property as they have a misconception that timeshare sales are not subjected to income tax. In reality however, timeshares sales are subjected to income tax. Timeshares are similar to any other kind of real estate property that one might invest in. This is because a timeshare property is a capital asset just like any other investment and there is the aspect of capital gains added to it. This means that there is a potential to make a profit when the timeshare is sold.

That being said, the timeshare property must be owned for at least 1 year or 12 calendar months before it can be eligible for income tax. All costs associated with buying a timeshare like closing costs , which was payable at the time of purchasing the timeshare, the annual maintenance fee for the number of years that the property was owned can be included into the cost of the timeshare.

On the flip side however, if the investor incurs a loss with the timeshare, that loss is categorized as capital loss and is deemed as a loss like on any real estate property. These losses cannot be deducted ...
... from the annual tax returns. The situation might differ if the timeshare unit is regularly rented. In such a case, any loss on sale would be termed as allowable business loss and would be deductible as an allowable ordinary loss in tax returns. Loss on sale would not be allowed by IRS if the unit had been converted back to personal use before selling.

Besides property tax being billed separately, no other deductibles are allowed against timeshares.

They are also deductible if the resort differentiates it as a different item on your maintenance fee bill.

Interest on timeshare loans maybe deducted only if the loan is taken as mortgage and the investor should not have any other deductible mortgages except the primary home mortgage. The disappointing fact is that not all timeshare loans qualify as mortgage loans as they are primarily termed as consumer loans. Interest cannot be deducted on multiple timeshare loans at a time if the owner investor has a primary home mortgage although the investor can deduct interest on multiple timeshares if they are located at the same resort because it can classified as a single timeshare.

For investors, who would like to donate a piece of property, timeshares can be donated to charity. With deeded timeshares, the allowed deduction is equivalent to the fair market value of the timeshare on the date of donation. However, if the fair market value exceeds five thousand dollars, the investor must procure a written appraisal which meets the IRS guidelines. Additional rules apply for non-deeded and right to use timeshares, as they are deemed as tangible assets. In such a case, the fair market value of the timeshare would need to be reduced by the amount equal to any gain that would have been made had the property been sold by the owner.

In the case of renting a timeshare, the owner can claim deductions on the cost of depreciation, cost of advertising, rental commissions and maintenance fees. Assessments like repairs and or unexpected expenses can also be deducted. Travel expenses and remodeling expenses are not deductible.

The main rule that a timeshare owner must remember is vacation home rules apply if the property is used for at least fifteen days a year for personal use.