Basic Tax Information About Timeshare Properties
Some people are under the misconception that sales of timeshare property are not subject to income tax
. The truth is, they are. Timeshare sales are treated the same way as sales of any other kind of real estate. A timeshare property is a capital asset, and if you make a profit when you sell it, you have what's called a capital gain. However, you have to own the timeshare for more than one year before your expenses will be eligible as income tax deductions. You can then deduct the expenses you incur through owning the timeshare. These deductible expenses include the closing costs you paid when you bought the timeshare, annual maintenance fees for the years you owned it, and special assessments, if any were paid.
Like any other real estate property if you sell your timeshare and if you incur loss which is called capital loss, you many not be able to deduct the losses in your tax returns. But situation might differ if you regularly rent the unit; any loss on sale would be termed as allowable business loss and would thus be deductible as an allowable ordinary loss in tax returns. Loss on sale would not be allowed by IRS if the unit had been converted back to personal use before selling. There are no other deductibles allowed against timeshare properties.
The exception is the property tax only if it is billed separately. They are also deductible if the resort differentiates it as a different item on your maintenance fee bill. You may also be able to deduct the interest on a timeshare loan, but, only if the loan is taken as a mortgage and there should be no other deductible mortgages except your primary home mortgage.
Sadly, not all timeshare loans qualify as mortgage loans as they are primarily termed as consumer loans. Also you have to keep in mind that you cannot deduct interest on multiple timeshare loans at a time if you also have a primary home mortgage. But you might be able to deduct interests on multiple timeshares if they are at same resort, as they can be viewed as one timeshare.
The timeshare property can also be used for donating to a charity. But there are some restrictions. If you want to donate a deeded timeshare, the allowable deduction is normally equal to the fair market value of the timeshare on the date of donation. If the fair market value exceeds five thousand dollars you will have to get a written appraisal that should meet IRS guidelines. In case of non-deeded and right to use timeshares which are considered as tangible assets, additional rules apply. The fair market value of the timeshare must be reduced by the amount equal to any gain that would have been made had the property been sold by the owner.
If you rent your timeshare property, you can claim deductions for your related expenses, including rental commissions, maintenance fees, depreciation and costs of advertising. Certain special assessments, for repairs or unexpected expenses, may be tax deductible. Remodeling and travel expenses might not be.
Remember, too, that vacation home tax rules apply if you personally use your timeshare at least 15 days every year. If you use it at least 15 days the timeshare can also qualify.
by: Eric K Frey
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