subject: Some People Are Under The Misconception That Sales Of Timeshare Property Are Not Subject To Income T [print this page] Some people are under the misconception that sales of timeshare property are not subject to income tax. The truth is, they are. Timeshare sales are treated the same way as sales of any other kind of real estate. A timeshare property is a capital asset, and if you make a profit when you sell it, you have what's called a capital gain. However, you have to own the timeshare for more than one year before your expenses will be eligible as income tax deductions. You can then deduct the expenses you incur through owning the timeshare. These deductible expenses include the closing costs you paid when you bought the timeshare, annual maintenance fees for the years you owned it, and special assessments, if any were paid.
As with other types of real estate if you sell and lose money, it's considered a capital loss and you might not be permitted to deduct your losses on your income tax return. It's a different situation if you regularly rent out your timeshare. In that case any loss you take on the sale would be an allowable business loss and therefore deductible as an allowable ordinary loss on your income tax return. The IRS would not let you do this, however, if you had converted your timeshare property back to personal use before you sold it.
With one exception, no other deductions are permitted against a timeshare property. The exception is property tax, but it is only deductible if it is separately billed or shown as a separate item on your resort's maintenance fee bill. You may also be able to deduct interest you paid on a timeshare loan, but only if the loan is a mortgage and the mortgage on your primary home is the only other deductible mortgage you have.
Not every timeshare loan will qualify as a mortgage because timeshare loans are primarily consumer loans. You also have to remember that interest on several timeshare loans you have simultaneously cannot be deducted if you also have a primary home mortgage. However, if you have multiple timeshare loans at the same resort, you might be able to deduct the interest because they might be seen as a single timeshare.
You can donate your timeshare property to a charity, but some restrictions apply. If the donated property is a deeded timeshare, the allowable deduction is usually equal to the timeshares fair market value on the date of donation. You will need a written appraisal that meets IRS guidelines if the fair market value is more than $5,000. There are additional rules for non-deeded and right-to-use timeshares that are considered tangible assets. The timeshares fair market value must be reduced by any profit you would have made if you had sold the property instead of donating it.
Timeshare property that is rented has different rules. You will be able to claim deductions for expenses, such as costs of advertising, depreciation, maintenance fees and rental commission. Some special assessments, like unexpected expenses and costs of repair, may be deductible. Other expenses, such as remodeling and travel costs, may not be.
Remember, too, that vacation home tax rules apply if you personally use your timeshare at least 15 days every year. If you use it at least 15 days the timeshare can also qualify.
