Understanding Tax Reporting Requirements for Timeshare Owners
For the majority of timeshare owners, there are generally no additional income tax reporting requirements related to their timeshare ownership. However, there are some exceptions, and under specific circumstances, reporting may be necessary.
Understanding Tax Implications When Buying, Selling, or Renting Timeshares:
For instance, if you actively engage in the business of buying, selling, or renting timeshares, your timeshare transactions must be reported on your tax return, and they will be treated for tax purposes as any other business enterprise with revenue reporting and expense deductions. On the other hand, if you are like most timeshare owners who acquired their timeshare interests exclusively for personal use, there should be no tax reporting requirements.
If your timeshare interest is primarily for your personal use but you occasionally rent it out to offset the annual maintenance fees (with your personal use surpassing the infrequent rental), the IRS does not view that minimal rental activity as a trade or business. Consequently, there should be no required reporting for those occasional circumstances either.
Why Did I Receive a 1098 For Tax Reporting?
The confusion for many timeshare owners comes when their resort developer sends out an IRS tax form, the ‘1098’, which is a form typically used for reporting mortgage and other interest payments paid by the note obligor to the developer. If the mortgage note was instead for an individual’s primary or even a secondary, (or vacation) residence, then, those interest payments could be deductible to the taxpayer, assuming that the taxpayer elects to itemize their tax-deductible expenses. However, many taxpayers no longer itemize their deductions because the standard deduction is large enough to offer an equal or better overall deduction from a taxpayer’s adjusted gross income than the average itemizable deductions.
The Internal Revenue Service does, under very limited circumstances, treat a timeshare interest as a qualified time-sharing arrangement. You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. Again however, many of the newer timeshare product acquisitions do not transfer actual real estate to a purchaser but simply confer a right to use resort facilities on a points-based basis. It is unlikely that a points-based right to use interest, in the absence of actual partial deeded interest will comply with IRS regulations as a qualified time-sharing arrangement.
In spite of the possible confusion created when the timeshare interest holder received the developer prepared 1098, a copy of which was also presumably provided to the IRS, the recipient need not have concerns about the IRS having received this information, because it solely pertains to a possible deduction and in no way creates any assumption of unreported taxable income.
Therefore, the IRS form 1098 can be, and probably should be in most instances, disregarded by the recipient timeshare interest holder, particularly if that interest is used primarily for personal and family-based activities and the tax filer does not plan to itemize their deductions.
Timeshare Tax Questions and Filing
Always consult your CPA or tax preparer in all matters related to income tax filing. In most cases, a tax professional can identify the benefits of any expenses and deductions if any should exist beyond the personal use or resale of a timeshare.
Disclosure: This article is for informational purposes only and is not intended as legal or tax advice.
Led by timeshare attorneys J. Andrew Meyer and Michael D. Finn with over 75 years of combined legal experience. The Finn Law Group is a consumer protection firm specializing in Timeshare Law. If you feel you need to speak with an attorney about a timeshare matter, please contact us for a free consultation at 855-FINN-LAW or email us at [email protected]