Let's be honest; timeshares can get expensive! So much so that when tax season rolls around, you might have wondered if you can write off some of them. Consider the following article a guide on timeshare tax deductions. It'll cover everything from which costs you can and cannot write off to how you can also deduct a loss.
Nevertheless, if you're a timeshare owner, always speak with a tax professional regarding the specifics of your tax picture each year to get the help you need.
A timeshare is a vacation property under fractional ownership, meaning several owners share the cost and use. Timeshares work in one-week intervals, so one unit could have up to 52 owners. However, not all agreements are the same, and therefore not all owners have the same tax benefits. If writing off a timeshare is possible, learn what type of timeshare you own.
The type of timeshare ownership is the most crucial factor in determining potential tax deductions. Timeshare purchases often fall under two types:
Before filing your taxes, ascertain which type of timeshare agreement you have. As you'll later find, some deductions rely on whether you own or lease the property.
As a timeshare owner, you might wonder which expenses qualify for a tax write-off. Below, we'll look at the timeshare costs that make for the best tax deduction opportunities. Yet, keep in mind that consulting with a tax professional is the best way to determine your tax eligibility.
Timeshare buyers often take out a mortgage loan to cover the upfront costs. Whether you can write off the interest payments depends on the type of timeshare loan you obtained. Secured loans often are tax-deductible. Therefore, timeshare owners with collateral, such as a deeded timeshare or a home equity loan, may be able to deduct their mortgage interest expenses.
The average yearly cost for timeshare maintenance fees is $1,000 and rising. Hence, most owners would like it if their annual maintenance fee was tax-deductible. Alas, it’s usually not. A timeshare property is a private entity, so these fees are the same as what you pay to maintain a primary home, meaning they’re not eligible for a tax write-off. There is one exception, and that’s if you rent your timeshare to other people.
Under certain circumstances, you may be able to get a deduction if you pay property tax on the timeshare. If the property taxes are billed separately from the maintenance fees, you should be able to deduct them. When billed together, it’s more challenging. Although, you may just need to ask for an itemized statement from the timeshare company to prove how much you paid.
Not all timeshare expenses qualify for tax deductions. No matter what you do, some of these expenses always remain non-tax-deductible. Still, check with a tax advisor to ensure you won’t disregard a deserved tax return.
Unsecured loans are riskier for lenders because they’re not protected by collateral. For that reason, you may not be able to get a tax write-off. If you purchased with a credit card or with a loan from the timeshare company, don't expect to deduct the interest.
When buying a timeshare, some real estate legal fees always get tacked onto the bill. These fees not only hurt your wallet on the day of purchasing, but they're also ineligible for deductions come tax season.
The closing costs and special assessments of a timeshare purchase can vary, but needless to say, they’re often pricey. Alas, these expenses are hardly ever eligible to be deducted for tax purposes.
Due to increasing issues with affordability, many timeshare owners consider selling their property. As a form of real estate, reselling is no issue. However, most timeshares get sold at a loss, making owners wonder if they can deduct that loss from their taxes. Often, the answer is no, but there are a few exceptions:
You can deduct a loss on a timeshare sale if it is a business timeshare. What constitutes a business timeshare? You must have either purchased the timeshare to use for business lodging or as an investment. Whichever is the case, you must never use the timeshare for personal purposes.
If you sell a business timeshare, you may write off the loss as a business lodging expense. You might need to prove you have a legitimate business and only used the timeshare for business-related activity. Keep detailed records of your timeshare business lodging.
The timeshare resale market isn't a lucrative option for owners looking to get rid of theirs. Thus, many choose to donate their timeshare instead. By doing that, you may be eligible for a tax rebate at fair market value. You may need an independent appraisal to confirm your tax deductions.
Donating a timeshare is not the only way to get rid of one. Although it may not have the same tax benefits, consider hiring a timeshare exit company. If you choose that route, find a trustworthy company like Wesley Financial Group, LLC.*
You may be entitled to standard deductions on rental expenses if you rent the timeshare for others to use but still pay the maintenance fees. The timeshare must qualify as a rental property, and the income will have to be reported when filing taxes. You may also deduct the losses incurred on its sale if it qualifies.
Having your timeshare meet the qualifications for a rental property is not always easy. For example, it must be rented at fair market value for at least 15 days out of the year and cannot be used for personal use for more than 10% of the total days rented. Few timeshares meet these classifications.
Timeshare ownership can make for messy situations. Why would it be different when it comes to filing taxes? That’s why you'll want to work with a professional in both the timeshare and tax realms. Finding support from a trusted tax advisor can ensure you prepare your timeshare tax report correctly and that you receive your fair deductions.
*Wesley Financial Group, LLC, and its affiliates, successors, or assigns are not lawyers or a law firm and do not engage in the practice of law or provide legal advice or legal representation. All information, software, services, and comments provided on this site are for informational and self-help purposes only and not intended to substitute for professional advice, legal or otherwise.