We would like to think that all timeshare sales teams would be honest and upfront with consumers, when they are presenting the contract and benefits of timeshare ownership. We know however from almost a decade and a half of client service, that many timeshare sales teams deliberately mislead buyers into believing there are financial benefits to owning a timeshare, when, timeshare ownership is one of the biggest liabilities an American can enter, but does it offer a tax deduction benefit?
Our timeshare cancellation team has helped hundreds of families, and each story (while unique) has some common threads and misconceptions that started directly with sales presentation and timeshare representative. In fact, some of the best open-and-shut cases for timeshare cancellation and sales fraud occur when the consumer can provide evidence that the contract, or the representative, mislead what was being purchased. American contract laws require that any individual purchasing a timeshare receives a full disclosure of the financial obligation, legal implications, projected costs and complete information about the contract they are signing.
So, when clients tell us that a timeshare company promised that their vacation property would be tax-deductible, we must inform them (if they haven’t already learned through their tax professional) that there are virtually no tax advantages for timeshare owners. So how do timeshare sales teams get away with lying about it, and using it as a selling perk for prospective buyers? We’ll explain how the Internal Revenue Service (IRS) views deductibility criteria for timeshare and other leased vacation properties.
Interest on Purchase Loan Expenses
When most people buy a new timeshare directly from a resort, there is a substantial up-front down payment that is required. The payment can be as low as $5,000 or as high as $50,000 or more, depending on the type of resort and the timeshare lease that is being purchased. Many Americans choose to finance this balloon payment with a medium-term loan from a financial institution, or sometimes through private financing with the timeshare company.
Timeshare sales ‘professionals’ like to share what they believe to be financial advantages that support timeshare ownership, and part of that pitch can include that there is a personal income tax advantage to owning a timeshare. While expenses and escalating fees make timeshares very costly to own over the long-term, only some timeshare owners can take advantage of the tax deduction, if the purchase of their timeshare is structured properly.
For example, an individual who already owns a primary residence (house or condo), can take out a home equity loan against their residence, to purchase a timeshare. If there is an interest cost on the home equity loan, that amount may be tax deductible only if:
The timeshare is a deeded property to the timeshare owner.
The home equity loan was the established (proof required) method of purchasing the timeshare, or providing the lump-sum down payment.
The seller (timeshare) has structured the loan in a form that demonstrates that the timeshare week is a ‘security’.
If your timeshare sales person has told you that there are tax advantages to owning, there are, under certain and very regulated circumstances. Most timeshare owners do not qualify for tax deductions, given the loan structures, but many are promised tax benefits that they will not be able to realize.
Property Taxes May Be Eligible
Depending on the structure of your timeshare, owners may be able to claim some tax deduction benefit from the cost of annual property taxes. If the timeshare property is assessed and billed directly to the timeshare owner by the municipality, a portion of the amount may be used as a tax credit annually. However, if the timeshare organization does not bill property tax separately (or show it as an independent annual charge or bill) the timeshare owner will not be able to claim the amount.
For example, if the resort is charged property tax directly by the municipality or region, and that amount is rolled into the maintenance fees split evenly by all members of the timeshare, owners cannot claim a tax credit. If billed separately however, and if the consumer owns multiple timeshare properties where the property tax is denoted separately, there is no legal limit established that prohibits claiming each individual property tax, as annual tax deductions.
Right to Use (RTU) Timeshares Are Not Tax Deductible
If you have a long-term lease timeshare contract, known as an RUT (right to use) timeshare, the interest that accrues on any loan taken to secure the timeshare purchase, is not tax deductible. Any loans to acquire a timeshare that are not connected to a home equity loan on a primary residence (the home in which you live) or mortgage is ineligible for tax deduction.
Closing Costs Assessments and Maintenance Fees Are Not Tax Deductible
Current tax laws in the United States do not allow an exemption or credit for maintenance fees paid to a timeshare resort, for a leased or deeded property. If the consumer has paid legal and closing fees (which are common) for the timeshare sales transaction, those fees are also not eligible for personal tax deduction.
All fees are personal expenditures in the present income tax code and are not qualified as tax deductions. If your timeshare association requires that your lease has a special assessment, for adjusting fees for property improvement or repairs, those fees are also not tax deductible.
Get the Tax Facts Before You Sign
Consumers enter timeshare contracts for a variety of reasons, and our timeshare cancellation team knows that the opportunity to enjoy tax deductions annually is a lucrative promise that is not always explained correctly to potential buyers. If you have questions regarding your timeshare contract and what you can legally claim as a tax benefit, consult with a professional accountant or income tax specialist for more details. But remember, only some types of loans qualify for tax deduction; get the facts before signing on a sales promise of tax benefits that you may not be eligible for.