Many people learning about timeshare ownership toss in their sleep wondering if they receive all tax deductions available to them as Timeshare owners. Let's try to clear up some general questions so tax season might be easier to navigate. You are always wise to seek the advice of a qualified tax professional as tax laws change from year to year.
First of all, when purchasing a timeshare unit, any closing costs, escrows, etc are not deductible. There could be an exception in California if property taxes were prorated on an escrow closing statement. Property taxes can also be deductible if the timeshare resort shows them on your bill for maintenance as a separate item and you itemize your deductions.
Interest expense on a timeshare is typically not deductible because most timeshare loans are secured as consumer loans. To qualify for an interest deduction, the loan must be an actual mortgage loan. Also, you may deduct interest on a mortgage for only one property in addition to your primary residence. If you financed your timeshare with a home equity loan on your primary residence or by refinancing the mortgage on that residence the interest will typically be deductible.
If you use your timeshare as a rental property, you can deduct all current expenses against your rental income. Applicable expenses include maintenance fees, commission paid to a rental agent, advertising and depreciation. You can't use the "vacation home rules" to avoid reporting rental income unless you use the vacation home for at least 15 days every year for personal purposes. That means you would need to own at least four weeks of a unit and rent it out only one of those weeks.
Don't expect huge tax benefits if you donate your timeshare to charity. If you decide to make the donation and it's a deeded timeshare, the deductible contribution will be equal to the Fair Market Value (FMV) at the time it's donated. If that FMV is over $5,000, a written appraisal is required by the IRS. Donating a week's stay in your timeshare at a charity auction, for instance, doesn't result in a deduction for either party. The donor can't claim a deduction due to the partial interest rule and the bidder cannot claim a deduction as they received a benefit equal to the amount of their payment.
Profit on the sale of a timeshare is treated as capital gain. The capital gain would be taxed at a lower rate if you owned the unit for more than a year. If you or any relatives/friends use your timeshare, exchange it, etc. (anything other than renting) a loss from the sale would be personal, thus not deductible. If a loss results in the sale of a timeshare rental property it could qualify as a business loss. If so, it's deductible as an ordinary (non capital) loss.
Hopefully we've cleared up some basic tax questions. The best advice is to buy your timeshare as an investment in your family's vacation time together rather than a real estate investment. What better investment than making memories together!