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, are timeshare fees tax deductible?
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.
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.”
Most fees that timeshare owners are likely to incur – including closing costs, special assessments, and annual maintenance fees, are not tax-deductible.
Timeshare Maintenance Fees
Let’s look first at maintenance fees. These are the recurring costs associated with keeping your timeshare unit in good condition and up to the standards of the resort.
They cover things like:
Cleaning and Housekeeping
Lawn and Landscaping
Building Upkeep and Repairs
Pool and Spa Maintenance
Timeshare Management and Staff
Read more about it here, via RedWeek timeshare. Unfortunately, annual upkeep costs on a vacation timeshare can range on average over $1100 or more each year. These timeshare fees will 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.
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.
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 Articles of Interest:
How to Deduct a Loss On a Timeshare Sale
Tax Breaks on Timeshares
$8.5 Million IRS Penalty Upheld Over Timeshare Donation Tax Shelter
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 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.