Deductible Items (e.g., Taxes
and Interest)
Unless you rent your timeshare to others, you might
have no deductible amounts related to the timeshare.
However, if the property taxes applicable to your
unit are billed separately to you (such as in
California), those are deductible. They should also
be deductible if your resort shows them as a
separate item on your maintenance fee billing.
However, if you have to seek out the tax amount
applicable to your unit by examining the financial
statements, the taxes are not deductible.
A few owners can deduct the interest expense on a
timeshare loan. The interest is deductible only if
the loan is secured by the timeshare as a mortgage
and you deduct no other mortgage interest except on
your primary home.
*Note that most timeshare loans don't qualify
because they are written as consumer loans rather
than as mortgages. Similarly, interest expense
on credit card debt used to finance the purchase
would not be deductible.
If your timeshare was financed with a home equity
loan on your personal residence or by refinancing
your mortgage on that residence, the interest is
generally deductible, subject to certain
limitations.
Can you deduct interest on loans
for more than one timeshare?
If you have a mortgage on your primary residence,
interest paid on loans on multiple timeshare
properties would not be deductible, since interest
in connection with only one property other than the
primary residence can be deducted. But suppose the
multiple timeshares are all at one resort. You might
reasonably view these multiple timeshares as one
"residence". The tax rules aren’t clear on this
issue. Forget about trying to use your timeshare in
your business to get depreciation and other
deductions.
There is a rule in the tax law that prohibits any
business deduction pertaining to an "entertainment
facility". Timeshares fit into that category. There
are a few very narrow exceptions to this rule. Your
annual maintenance fee is not deductible. This
annual fee for utilities, pool care, lawn care,
other maintenance, management, and other expenses
can be compared to similar expenditures that you
might incur on your primary residence, which are
also not deductible.
Donate a Timeshare To Charity
Should I donate my timeshare to charity? The
answer is "Yes!”
If donating a deeded timeshare, the deductible
contribution amount will normally be equal to the
Fair Market Value (FMV) on the date of donation.
That’s the price that an arms-length buyer and
seller in the timeshare resale market would agree
upon, not what the developer is charging for that
same week. If the FMV exceeds $5,000, you’ll need a
written appraisal that meets IRS guidelines. If the
sale of the property would have resulted in a
short-term gain, the FMV must be reduced by this
amount.
Right to Use (RTU) timeshares and non-deeded
points timeshares are tangible personal property to
which additional rules apply. If the charity’s use
of the property is unrelated to its primary function
(for example, if sold at an auction), the FMV must
be reduced by the amount of any gain that would have
resulted had the property been sold by the taxpayer.
Why
can’t the tax benefit justify a donation?
The truth is that it doesn’t have to! For many of
you attempting to liquidate your timeshare you may
have found it is no easy task… Avoid these hassles…
Is it worth it?
If you are in this position then the answer is most
assuredly YES! Especially when the charitable
organization can make meaningful use of your
property the gains can increase for you. It is of
course best to consult you tax advisor.
Another frequent question is, "Can I get a tax
deduction if I donate the use of my week to a
charity?" The answer is “No”. IRS regulations
won’t allow a charitable deduction for the gift of a
right to use property. Donate the use of a week
because you are charitable, but you can't deduct any
value associated with the use of the week.
Rental Income and Losses
If you rent your timeshare, you can deduct all
current expenses, including depreciation,
advertising, rental commission and maintenance fees
against the rental income. Special assessments for
remodeling, roof and furniture replacement and
similar expenditures would not be deductible.
Special assessments for repairs and unexpected
current expenses might be deductible, depending on
the nature of the expenses. Travel expenses to check
on your timeshare will normally not be deductible
because, as discussed below, your timeshare rental
won’t qualify as a “business”, as is required for
such a deduction.
How do you calculate depreciation
expense? If your timeshare is newly
purchased, even from a secondary market, you can
base your claimed depreciation expense on your
purchase cost. However, if you have previously used
your timeshare for personal purposes (including an
exchange or use by friends or family), you must base
your depreciation on current value - which means
resale value - as of the date you convert to rental
use.
If deducting expenses from rental income results in
net rental income for the year, it's taxable. If you
have a net rental loss, you cannot deduct the loss.
How come?
First, it's certainly legitimate to deduct rental
expenses to offset rental income. However, with
timeshare rentals, there are some significant
limitations if you incur a loss.
Assuming that like most timeshare owners, you
typically rent to tenants for one week or less at a
time, your rentals don't qualify as a "rental"
business. A special section of the Income Tax
Regulations prohibits treating your loss as a
“rental loss” if the average rental period for a
particular tenant is seven days or less.
So what happens to the loss if it's not treated
as a business rental loss? It falls into the
passive activity loss rules of §469 of the Internal
Revenue Code. Those rules prohibit deducting such
losses except against other passive activity income.
Such income is narrowly defined and doesn't include,
for example, dividends, interest or other investment
income. You're pretty much stuck with carrying over
such losses to use against positive taxable income
from your rental activities in future years. You can
also deduct any carryover losses related to a rental
property in the year you sell that timeshare. There
are a number of complex rules that could change the
result here - including the vacation home rules,
rules relating to renting to tenants for longer than
one week at a time, etc.
Vacation Home Rules
Wouldn't the vacation home tax rules apply to a
rental gain, allowing you to avoid reporting the
income, because you rented the property for fewer
than 15 days? No, the vacation home tax rules will
usually not apply. Thus, you must report the rental
profit - whether you own one week or a number of
weeks.
The vacation home rules apply only if you use the
"vacation home" for at least 15 days each year for
personal purposes. A timeshare can qualify as a
vacation home. However, unless you own at least four
weeks at a single resort, using at least three of
the weeks for personal purposes, you can't take the
benefit of excluding the income from renting the
fourth week, because there is no practical way that
you could use your timeshare for at least 15 days
and rent it out to others.
Thus, in almost every situation, you must report the
rental profit. You can also offset losses from some
rentals against profits on others to minimize your
net taxable income, but deducting a net loss is
still subject to the rules above.
