Amidst all the information around buying, selling, and exchanging timeshares, the significance of timeshare tax can get lost in the shuffle. Once you own a timeshare, these valuable timeshare tips can help you maximize your tax deduction.
1. Claim Interest Expense
If you have a mortgage for your primary residence, you likely know that any interest paid on that mortgage is tax deductible. Similarly, if you took out a mortgage to pay for your timeshare, you can deduct any interest incurred on that loan.
Note that you are allowed to deduct mortgage interest for your primary residence and one vacation property. If you mortgaged multiple timeshares, you may only claim the interest for one even if you do not own a primary residence or don't have a mortgage on your primary residence.
This tax deduction is a factor to consider when debating whether to pursue a loan to pay for your timeshare. Other factors such as interest rates, price, and the length of time you plan to keep the timeshare should also be evaluated. Yet, the potential tax deductions may make financing a more attractive option.
2. Look for Property Tax Charges
Property tax is also deductible on timeshares as it is for traditional homes. The trick is making sure it's plainly and appropriately identified and documented as property tax. Property tax paid via separate property tax bills is eligible for deduction. Also, you can take the deduction if your maintenance fees clearly itemize property tax as a portion of your required payment. If the property tax is not clearly called out, you most likely will not be able to take the tax deduction.
This rule underscores the importance of understanding the timeshare contract and all components involved with maintenance fees and other financial responsibility. If there is no language around property tax in the timeshare contract, ask about taxes and have the specifics written in and billed accordingly. Depending on location, the property tax liability could be pretty hefty. So you don't want to overlook the corresponding deduction.
3. Track Rental Costs
If you rent out your timeshare to other parties, you can deduct related rental costs such as maintenance fees, depreciation, commissions, and advertising expense. In effect, renting out your timeshare allows you to deduct most current expenses. This is a nice way to recoup some of the expense required to rent your timeshare. Special assessment fees would not be deductible in this case.
The depreciation should be based on the current value of your timeshare, which translates to the resale value at the time of rental. If your timeshare is a recent purchase, you may use the purchase price to calculate depreciation.