Consumer Advocacy
Timeshare Taxes: An FAQ
As a timeshare "owner," can I deduct property taxes I pay on it?
It depends. Property tax is a state-by state matter. In California, for example, timeshare owners are billed directly for their property; in Florida, however, each timeshare week is assessed individually and property taxes are itemized on maintenance fee billings. These kinds of taxes are deductible, being assessed against individual ownership, but your local IRS office should be contacted regarding special instances. There is no limit to the number of timeshares for which you can deduct property taxes, authorities allowing.
What about the interest on loans taken out to buy timeshares? Do these work the same as mortgages?
Ordinarily, yes, you can claim a tax deduction on vacation home loan interest, if the loan is secured with the financed property. For example: if part or all of the timeshare is charged to a credit card, the interest would not be deductible, technically falling under the category of credit card debt. Be aware that most loans offered directly from timeshare companies are not secured by the property in question, either. And loans paying for “right-to-use” timeshares often do not qualify, since a “right-to-use” is not the same as legal ownership. The loan documents must cite the timeshare week as security for the loan in order for the interest to be deductible.
Tax laws also only allow interest deductions on your primary home and one another, so you may have to choose which timeshare receives the deduction if you own several. However, owning multiple weeks at a single resort may qualify as a single property ownership, especially if the weeks are fixed rather than floating.
What if I have a lot of home-owner debt?
It depends on how much. Tax laws usually only allow full interest deductions if the collective debt on your two properties does not exceed one million dollars mortgage debt and one hundred thousand dollars home-equity debt.
What about my maintenance fees and other membership dues? Are they deductible, too?
The short answer is no. The long answer is no, because they pay for the maintenance and improvement of the resort and other administrative costs. None of these expenses are tax deductible, and neither are closing costs, exchange fees, or any other miscellaneous payments made during the transaction of a timeshare purchase unless they somehow relate to property taxes.
What about if I rent my timeshare out? Surely that money doesn’t count as income?
This is a common misconception. Renting out a timeshare is generally no different from renting out any other property, unless one condition is met: you use the timeshare for at least 15 days per year but sublet it for less than 15 days per year. Most situations do not fall under this category; one would need to own at least four timeshare weeks at the same resort to begin qualifying.
However, while renting your timeshare you are allowed several offset deductions: maintenance fees, advertising fees, rental commission and depreciation could all be itemized on a Schedule E for relevant tax cuts. However, there’s a rule in place that doesn’t make it possible to file for a rental loss (this is where your expenses exceed your rental income) in most situations: if you rent out your timeshare for a yearly average of one week or less, the deductions on it cannot count as a rental loss. Like the instance above, you would need to own several weeks at a single resort and use some of them personally in order to qualify. You would also have to actively participate in the act of renting – if the Disneyworld Resort did all the work for you while you wrote checks for ads it wouldn’t work. In short, these instances are extremely rare and thus cannot be considered by most timeshare owners. Some exceptions are won in instances where a timeshare owner uses a title transfer company and provides proof that they purchased their timeshare as an "investment".
What if I just donate the timeshare? Would that help the tax situation?
Not really. Donating the use of your timeshare week doesn’t entitle you to much of a deduction at all, and you’d still be responsible for all the usual maintenance fees. Likewise, most charities will not accept donations of timeshare ownership due to the liability issues and the fact that many are difficult to sell.
Although this article gives a fair overview of some of the common tax issues with timeshares, TCG still suggests that you contact a tax expert before pursuing any of these options.
Some parts of this article were advised by "Timeshares and Tax Deductions," by David H. McClintock, CPA, for TimeSharing Today, accessible here
