Tax Day will soon be upon us. That comes as no news to most Americans, but what might be news to timeshare owners is how to think of timeshares and taxes together.
The following basic Q & A will give you some things to start thinking about.
Q: How soon after purchasing a timeshare can I list it for deductions?
A: You have to own a timeshare for at least one year before you are eligible for any income tax deduction.
Q: Is the interest on my timeshare loan deductible?
A: To be deductible, the interest must be on a loan that is considered a mortgage. In addition, you are allowed interest as a tax deduction on a primary home and only one other home, which can be a timeshare. If you own more than one timeshare or vacation home, you can only claim interest deduction on one.
Q: Can I deduct the property tax of my timeshare?
A: If your timeshare property tax is explicitly separate from your maintenance fees, it is deductible. However, if you are not billed directly, or separately, for the property tax, and instead it is part of the total maintenance fee billed, it is not deductible.
Q: Are my timeshare maintenance fees and other special assessment fees deductible?
A: In a word, no. All annual fees and special assessment fees are generally for the maintenance and upkeep of the resort, and just like improving your primary home, the costs are not deductible.
Q: If I rent out my timeshare do I have to report the rent as income?
A: In almost all cases the rent you receive is considered income and thus must be reported as such.
Q: What about donating my timeshare to charity?
A: Deduction of a timeshare donation is based on “fair market value,” which may not be the same as your original purchase price, or even what the developer is currently selling units for. And your donation must be for ownership of the timeshare. If you donate the use of a week, that is not deductible.
Q: What if I sell my timeshare?
A: If you have owned the timeshare for more than one year and you receive a profit on the sale it is considered a capital gain, and must be reported.
If you take a loss on the sale, you may not deduct it. However, if you rent your timeshare out on a regular basis and do not personally use it, the loss might be allowable as a business loss.
These have been basic answers to basic questions, but since tax law is complex, in order to avoid any IRS penalties it is imperative that you hire a certified accountant to help you with your taxes in relation to your timeshare.
For a more in-depth look, read this series of timeshares and taxes articles written by David H. McClintock, CPA.
(Photo credit – irs.gov)