Tax season is not normally anyone’s favorite time of year. Trying to figure out what costs are deductible and what is not, can make your head spin. The purpose of this series of articles is to break down the tax law involved with timeshares and explain them in plain language so everyone can understand quickly and easily. This article explains what you can expect based on the income or losses for your rental property.
Owners that are using their timeshare property as a rental property may be allowed to deduct their current expenses such as advertising, maintenance fees, rental commission, and even depreciation in some cases. For example, if you rent your ownership in order to cover your annual maintenance fees, did you spend any money to advertise the unit? Did you pay a commission to rent the ownership, or did you just not recoup the amount you paid in annual maintenance fees last year, but plan to make a profit this year? You might want to speak with your accountant to see what can be written off, in theses cases.
There are expenses that would not be considered tax deductible. Purchasing new furniture, remodeling the property or any other similar expense is not deductible on your tax return. Travel to your timeshare to check on it would also not be deductible because it cannot be considered a business expense. Just paying your annual maintenance fees and not using the ownership also would not qualify as an expense that can be written off on your taxes.
Net Rental Loss
When you are renting your timeshare and deducting your rental expenses results in an overall loss, you cannot deduct your loss. There are tax limitations on renting timeshares when you experience losses. It is assumed that your rental tenants would be staying for a week or less at a time. This does not qualify you as a rental business because of a particular section, §1.469-1T(e)(3)(ii)(A) of the Temporary Income Tax Regulations. This prevents owners from claiming their loss as a “rental loss.”
Unfortunately, this means that owners have little choice but to use these losses against a net income gain on your rental in future years. If you sell your timeshare, the year that you do so, you may deduct carry over losses from your rental property. So, if you sell your property this year but have net rental losses from the year prior, you can deduct those losses against the sale of your ownership.
The conclusions of this article are the opinions of the author and are not intended to take the place of a licensed tax professional. This article is intended to get your mental “wheels spinning”, and broach the subject of tax deductions that apply to you as a result of owning a timeshare. Make sure you obtain professional advice when you file your tax return.
If you would like a free consultation about buying, selling, or renting a timeshare ownership, feel free to contact us.