Taxes and Timeshares

published on April 12, 2013 by

Do you know what expenses you, as a timeshare owner, can deduct on your tax return? The answer is not the same for everyone. Use the following information as a starting point for discussions with your own personal accountant.

Timeshare Ownership
1. Interest ExpensesIn addition to your primary home loan, the interest you pay on a loan that you used to buy a timeshare week is often deductible.

2. Secured LoanIf your timeshare loan is secured by the financed property, then the interest is deductible. If you used a home equity loan to finance the timeshare week, that qualifies. Based on the amount of debt for the properties, your deduction amount may be limited.

3. Property TaxesProperty taxes should be deductible unless the property taxes are neither directly billed to you nor separately stated on your maintenance fee billing. If the tax is not assessed against your individual ownership, you may not use it as a deduction. Maintenance fees are not deductible.

4. Assessments and ExpendituresIn general, special assessments by your timeshare association are not deductible because they typically represent fees for improvements, major repairs or unexpected expenses. 

Renting Out Your Timeshare 
1. Reporting IncomeIn almost every situation, you are required to report the income you receive from renting your timeshare on your tax return. The income could be offset by allowable deductions.

2. DeductionsThe most frequent deductions that are allowed could include: your annual maintenance fee, any advertising to offer the property for rent, rental commission, depreciation, property taxes (see above) and interest expense on your timeshare loan.

3. DepreciationTo calculate depreciation, take the percentage (based on the current IRS table – generally something like 3.485%) 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 the current value (or resale value) as of the date you started using it as a rental. Again, you would calculate the depreciation at a percentage from the current IRS table, of that amount.

4. Losses from renting your timeshare (expenses exceeding the rental income), are typically 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 explains the IRS position on this issue.

These points do 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 adviser.

Source: David H. McClintock, CPA