If you have never been solicited to purchase a vacation timeshare, you are probably in the minority. You will see these invitations in your mailbox offering a free visit to a resort location. In return, you will be required to attend a sales presentation as part of the free offer. If you go on vacation quite often, you may also be offered a meal credit or other incentive to attend a sales presentation. High pressure tactics will be used during these presentations, so avoid it if you are easily persuaded.

For some individuals who actually use their annual purchased time at the resort, it might provide a great benefit. For others, it might be something they will live to regret. Let’s look at the tax and financial aspects of owning a timeshare.

Characteristics – Timeshare ownership is usually purchased in units of a week per year, two being the most common, and for a specific number of years such as 20, 25, or 30. In addition, the ownership can be for high-demand times of the year or for the less desirable weeks.

Marketability – The resale market for timeshares is very slow, and the units that do sell are for a fraction of the original purchase price. This is especially true of the older timeshares with fewer weeks remaining in contract. There is also a vast number of timeshares entering the market with newer and more modern facilities. Also keep in mind that there are so many opportunists out there ready to separate you from a nonrefundable appraisal fee or other up-front fees before the units are sold.

Maintenance Fees – Virtually all timeshares come with an annual maintenance fee. Be careful about maintenance fees that have limits to their annual increase. You want the timeshare to be maintained, but you don’t want to feather someone else’s bed either. These annual fees are generally not deductible for tax purposes.

Interest – Generally, interest to acquire a taxpayer’s primary home and one annually designated second home is deductible as home mortgage interest. Thus, if the taxpayer’s mortgage limit has not been exceeded, the interest paid to finance the purchase of the timeshare is deductible as home mortgage interest for those taxpayers that itemize their deduction.

Sales Consequences – Since timeshares are considered personal-use property (not investment), any loss from the subsequent sale of the timeshare units would not be tax-deductible. On the other hand, gain from the sale of the timeshares would be taxable.

So, if you decide to acquire a timeshare, you might consider looking at units for resale within the resort you are interested in. Chances are you can purchase a unit far below the normal asking price. Please call this office if you have questions about the tax ramifications of timeshare ownership.