AccountingThe Implications of Buying Timeshare on Tax Returns
Whatever it is you're buying and/or selling, you can be sure that the IRS is never far behind. So in case you're in the market to buy a timeshare, expect some things to stir up on your tax returns. Timeshares can be significant purchases, which means certain tax rules apply. So what exactly are the things you have to be aware of on your tax returns when buying timeshares? Here is some information you might find useful:
Property taxes
How your timeshare unit is assessed will vary depending on the state where it is located. Some states, for example, may perform individual assessments of the weeks and identify the tax separately from the maintenance fees. Some states might also bill you directly.
However, if neither is done, you may not have entitlement to deductions because it's likely that your timeshare is assessed as part of the assessment of the entire resort. As such, it is treated as a single tax parcel or as multiple parcels that are relatively bigger than your timeshare week.
In case your property taxes on the timeshare you bought are deductible on your tax return and you have multiple timeshares, you will be able to claim deductions on taxes if all of them have been stated individually or billed separately.
What about closing costs and other fees?
After buying your timeshare, you will have to pay for closing costs. These, including legal expenses you may have incurred because of your purchase, are usually not considered deductibles on your tax returns. Non-deductibles also include membership fees, exchange fees, expenses related to your occupancy and any fees paid to your exchange companies. However, certain rules apply, so it's best to check IRS guidelines or consult a lawyer for more detailed information.
Renting your timeshare?
There's another implication on your tax returns in case you're buying a timeshare and later rent it out. Whatever earnings you gain from this transaction will be considered as income and must be reported as such. That is, unless you meet the tax rules covering your timeshare as a 'vacation home'. This rule, also known in the timeshare circle as the 15-day rule, will apply if:
a) you own at least 3 weeks in one timeshare resort
b) you personally use a minimum of 15 days on the property
If you meet these criteria, you could exclude whatever rental income you gain from renting out your timeshare for less than 15 days.
You could also claim certain deductions on your tax returns in case you are renting out your timeshare. These include depreciation, maintenance fees, commissions on rentals and costs of depreciation and advertising. If there have been any repairs done on the property, you could claim the cost as your deductibles. If you also pay property taxes separately, they could also be included.
Donating your timeshare?
Many generous timeshare owners prefer to donate their timeshares to charity. If your timeshare is deeded, this can be done. In this case, the allowable deduction regarding your timeshare property will be its fair market value at the time of the donation. But there is a limit. The fair market value is considered only if the value of your timeshare does not exceed $5,000. If it does, you will need to show proof of written appraisal that follows set guidelines by the IRS.
If your timeshare is the leased or right-to-use type, it will be considered as a tangible asset. Thus, certain rules will be applied. The amount equivalent to any sort of gain that could be generated by the property had it been sold will be deducted from its fair market value.