Tax Aspects for Timeshare Rental

published on July 21, 2009 by

If you’re a timeshare owner that’s decided to rent out their timeshare resort, you may be wondering about tax implications. What should do you about reporting the income you receive from the rental? What about deductions or loses? How do I calculate depreciation? Do I use Schedule E when filing? Here are answers to those questions and some suggestions on how to handle your timeshare tax situation from David H. McClintock, CPA.

  • Reporting Income
    In almost every situation, you are required to report the income you receive from renting your timeshare on your tax return. The income should be reported on schedule E and can be offset by allowable deductions.
  • Deductions
    The most frequent deductions that are allowed regarding rental income would include: your annual maintenance fee, any advertising to offer the property for rent, rental commission, depreciation, property taxes (if you pay them separately from the maintenance fees) and interest expense on your timeshare loan.
  • Depreciation
    To calculate depreciation, you should take 3.485% (based on an IRS table) of the amount you paid for your timeshare as a depreciation expense in the first year. 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 the value (or resale value) as of the date you started using it as a rental. Again, you would calculate the depreciation at 3.485% of that amount.
  • Loses
    If you incur any losses from renting your timeshare (ie. Expenses exceeding the rental income), that typically is not considered a tax deduction. You should direct your tax advisor to Section 1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations or IRS Letter Ruling #9505002, which gives explains the IRS position on this issue.

This article does not cover every situation associated with renting your timeshare and these suggestions may not apply to your circumstances. You should always consult your own tax advisor.

For more information on taxes and timeshares, see our previous articles:
Tax Deductions for Timeshare Owners
Should You Donate Your Timeshare to Charity