Note: This advice on timeshare and deductions is based on real life experiences. Be sure to check with your tax advisor for the latest changes before submitting anything to the Federal or State government!
The new tax law changes do not affect maintenance fees as a deduction. If you rent out your timeshare, the maintenance fees may be tax deductible. If you use it yourself, you cannot claim the maintenance fees as a deduction. Rental income must still be reported.
This can quickly turn into a confusing mess – especially after reading IRS Publication 527: “Residential Rental Property (Including Rental of Vacation Homes)”. If you are confused about reporting taxes on your timeshare rental property, seek the advice of a professional tax advisor.
Real Estate and Personal Property Tax Deductions
If you own a deeded timeshare, it is considered real property and you may have to pay real estate taxes on it. The new tax law puts a cap on how much of your combined real estate taxes you may deduct. The amount is capped at $10,000.00. So, for example, if you pay $9,000.00 in real estate taxes on your home, you will only be able to deduct $1,000.00 worth of taxes from your other properties, including deeded timeshare.
On the other hand, if your investment in timeshare is not deeded, such as points, it is not considered real estate, but personal property. If you live in a state which charges tax on personal property, the deduction remains the same.
If you rent your timeshare, you can still claim depreciation as a deductible.
Loan and Second Mortgage Interest
Deeded timeshare is considered vacation property, so if you took out a loan to purchase it, the interest may still be deductible. However, if you took out a second mortgage on your home to purchase your timeshare, home equity loans will no longer be deductible.
Capital Gains Tax
Selling a timeshare is the same as selling stock. If you make a profit, you still need to pay capital gains tax. There are timeshare resales experts than can give you examples of how the resale market is performing and an idea of how your timeshare would perform in that market.
But prepare to be disappointed. Timeshare resales are slower than residential real estate and they don’t usually grow in value.
Remember to file a nonresident tax return if your timeshare is used as rental property and is in a state with state income tax.
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