Can I Write Off My Timeshare as a Tax Deduction?
Are Timeshare Fees Tax Deductible
Often, timeshare is marketed as a real estate investment. It’s natural, then, for many consumers to infer that their timeshare “ownership” will come with all of the attendant perks of deeded real estate ownership, including tax advantages. But, the question comes down to “Can I Write Off My Timeshare as a Tax Deduction?”
Come tax season, IRS agents and accountants are flooded with questions about timeshares. The answer to whether or not timeshare fees are tax-deductible, however, is unfortunately not a simple one. It depends on a variety of factors, including how the Internal Revenue Service (IRS) classifies your timeshare arrangement and how you use it. Here are a few common questions that timeshare attorneys get as well.
- Can you write off a vacation from your taxes?
- What about the loans and interest that are taken out to pay for it?
- Are the annual maintenance fees deductible for timeshare owners?
The first thing to understand is that there are essentially two forms of timeshare: deeded ownership and right-to-use membership. Deeded ownership is what most people think of when they think of real estate ownership. You have a physical deed to the property in your name and you can will it to your heirs or sell it. Right-to-use ownership, on the other hand, is more like leasing a vacation property. You don’t own the physical property, but you do have the right to use it for a certain number of years.
Tax Implications: What the IRS Says About Timeshare Ownership
The IRS classifies timeshares as personal property, like a boat or motorhome. So, you can’t deduct the mortgage interest or property taxes on your timeshare like you can with a primary residence or second home. You also can’t write off the cost of your deeded timeshare when you eventually sell it. As our own Michael D. Finn puts it, “Only under the rarest of circumstances would the IRS allow any form of a deduction on a timeshare purchase or interest expense.”
Timeshare Capital Loss
When thinking about selling a timeshare, it’s important to consider the possibility of losing money, known as a timeshare capital loss. This means the resale value of the timeshare could be much lower than what was paid for it originally, resulting in a financial hit for the seller. This loss doesn’t usually qualify for tax deductions according to the IRS. Plus, the various fees associated with timeshare ownership, like closing costs and annual maintenance fees, typically don’t help with taxes either.
Understanding these financial risks is crucial for timeshare owners. Seeking advice from a tax professional can be helpful in navigating these complicated situations and minimizing the impact of a timeshare capital loss on one’s finances
Unanticipated Burdens: Understanding the Hidden Costs of Timeshare Ownership
As a new owner, you might find yourself unprepared for the complex and ongoing costs associated with timeshare ownership, particularly the burden of timeshare maintenance fees. These are constant and sometimes burdensome expenses that seemingly never cease, required to keep your timeshare unit up to an arbitrary standard set by the resort.
Variable Costs of Timeshare Maintenance
The first thing that might catch you off guard is the cost of cleaning and housekeeping services. These fees cover everything from daily tidying to deep cleaning tasks, and they can add up fast.
It’s worth noting that you’re essentially paying for these services whether you need them or not, whether you’re occupying the unit or not. The cleanliness of your timeshare, which could arguably be managed by you, becomes an outsourced and non-negotiable cost. Then there are the lawn and landscaping fees. You may not have even noticed the manicured lawns and neatly trimmed hedges, but you’ll certainly notice the charges for their maintenance. Despite the fact that these are shared spaces that you might not use, you’ll still be on the hook for their upkeep.
Maintenance fees also cover building upkeep and repairs, and this isn’t limited to fixing a few leaky faucets. It can range from minor repairs to major structural issues that you had no hand in causing. However, as an owner, you’ll be sharing the burden of these costs, regardless of who’s at fault.
Don’t forget about the pool and spa maintenance. Regular cleaning, chemical balancing, filter changes, and even heating during cooler months – all these come at an extra cost. And remember, these are costs you’ll bear whether you swim a single lap or not.
Security services are yet another cost, necessary but not directly beneficial to you unless there’s an incident. Fees for security personnel, surveillance systems, and regular security audits are all baked into your maintenance fees. It’s not an optional cost, even though you may feel perfectly safe and secure without these additional measures.
Finally, there are timeshare management and staff costs. You’ll be indirectly paying the salaries and benefits of the resort manager, customer service representatives, maintenance workers, landscapers, and security personnel – employees who you may rarely interact with. The work they do to keep the resort operating smoothly is essential, no doubt, but the costs are distributed amongst all timeshare owners, regardless of how much or little each individual uses and benefits from their services.
In essence, timeshare maintenance fees are a constant reminder that, although you’re a partial owner, you don’t have complete control over the expenses related to your property. The cost of enjoying a timeshare often extends far beyond the initial purchase price, a fact that can be a rude awakening for many new owners. Those costs are also not deductible.
Read more on Timeshare Tax Deductions via RedWeek timeshare. Unfortunately, annual upkeep costs on a vacation timeshare can range on average over $1100 or more each year on average. Timeshare fees will probably never be recognized as deductible by the IRS, just as you couldn’t deduct general maintenance or repair on your primary home. Timeshares are also almost always sold to consumers as personal property and not real property. In other words, there is no true land or real estate within your ownership.
Timeshare Points
Because most timeshare resorts have now transitioned to a “points-based” or “right to use” model – which doesn’t confer deeded real estate ownership to the consumer – It is not permitted to take a mortgage interest deduction.
In the very rare circumstances where a consumer does own and is legally obligated to pay a mortgage on a timeshare/fractional property (that is, they took out a loan to own a deeded piece of real estate recorded in the public record, and not just a selection of time), you may be able to deduct mortgage interest on your timeshare as a “qualified home.“
Given the overwhelming number of “points-based,” “vacation club” -oriented systems that most resort developers currently have in place, and the IRS’s approach to timeshares, this appears unlikely.
Timeshare Rental Write Off? It Depends
If you bought your timeshare for the express purpose of running it as a business by renting it out, you may qualify for deductions on certain expenses, which you can read more about in this TurboTax FAQ. Note, however, that these kinds of standard business expense deductions would be allowed and appropriate in any kind of business that was being run for profit (e.g. baseball cards, antiques, or virtually any product being bought and sold). In this case, timeshares themselves get no exclusive or favorable tax treatment in the eyes of the IRS.
Other Timeshare Tax Articles:
How to Deduct a Loss On a Timeshare Sale
$8.5 Million IRS Penalty Upheld Over Timeshare Donation Tax Shelter
Forbes Interview with Attorney Andy Meyer
This article is for information purposes only and is not to be considered legal advice. If you have other tax-related questions about timeshares, you should consult your tax preparers, CPA, or tax attorney.
____________________________________________
Led by timeshare attorneys Michael D. Finn and J. Andrew Meyer with 75 years of combined experience, the Finn Law Group is a consumer protection firm specializing in timeshare law. Our lawyers understand vacation ownership as well as the many pitfalls of the secondary market of timeshare resales. If you feel you have been victimized by a timeshare company, contact our offices for a free consultation. Know your rights as a consumer and don’t hesitate to drop us a line with any questions or concerns.
Read more on timeshare tax deductions on Twitter.
