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Deducting Your Timeshare Stays

Planning a trip to your timeshare this year? If you own a timeshare and use it only for personal and business lodging, you have a unique opportunity to maximize your tax benefits. This is because your business lodging at your timeshare escapes the dreaded restrictions imposed by the vacation-home rules. So by using your timeshare only for personal and business use, ie not renting it out to the public, you have an opportunity to qualify for both personal and business tax deductions.

But don’t despair if you have used your timeshare as a rental. There’s good news for you, too! If, for example, your timeshare had been a rental in 2022, it could be changed to personal and business use for 2023.  So keep reading the rest of the article! (But if there was a mixed purpose year, it would need to follow the less favorable rental rules.)

Big Benefit

Rule one for maximum tax benefits from a timeshare: do not rent it out or offer it for rental. If you rent your timeshare to others, you complicate your tax-deduction life. You can still get some benefits, but not as many as if it is only used for your personal and business use. That’s because IRS allows timeshare owners who do not rent out their property to claim deductions for business-related lodging without being subjected to the less attractive vacation-home rules.

To put it in “timeshare words,” this means that if you do not rent out your timeshare, you do not consider the adverse impact of the vacation home rules that make co-owner use of the timeshare count as personal use by you. What a nice benefit.

Example. You own 14 days at a timeshare. You use the timeshare for business lodging on 11 days and do not use it for three days. Under the rules, you look only at the days of use. All days of use (the 11 days) are days of business use. Thus, you deduct 100 percent of your timeshare cost as a business expense (i.e., your 14-day ownership).

Example with a twist. With 11 days of business use and three days of personal use, you divide the timeshare into its business and personal parts based on days of use. Again, you can ignore the co-owners because you had zero rental days. You deduct your 11/14ths business part, and you can treat the 3/14ths personal part as a second home.

Let’s focus for a moment on the rental part that complicates your tax life. As you would expect from tax law, what you think is a rental may, in fact, not be a rental. And as you now know, if it’s not a rental, your tax life gets easier.

Relatives

Here’s a good rule to know for timeshares: days of rental to a defined relative count as personal use days by you.

In other words, the tax code does not recognize as rental days the days you rent your timeshare to a defined relative (close relatives such as parents, brothers, children).

Example. Say you rented your timeshare at fair market rent to your brother for a week. Your brother paid the rent money by check. You accepted and deposited the check in your bank account.

Tax law says the rental of the timeshare to your brother never happened for you. For your taxes, your brother’s rental of the timeshare counts as personal use by you.

The rent charged makes no difference. Thus, both paying and non-paying relatives who use your timeshare create personal use by you. Another nice benefit!

Claiming Your Deductions

Now that you know the business-use-of-timeshare rules, you need to first ensure that you have business use of the timeshare. You can do that with business lodging or with employee use.

If you operate your business as a proprietorship or as a single-member LLC (disregarded entity treated as a proprietorship), you simply take your business use expenses for the timeshare and put them on your Schedule C.

This is not the case with a corporation. If you operate your business as a corporation, you likely own the timeshare personally. To get the deduction on the corporate books, have the corporation reimburse you for timeshare operating expenses and depreciation as reimbursed employee business expenses. This avoids rental-use complications and ensures your maximum tax benefits.

Records Strategy

Keep detailed records of your timeshare use, separating business from personal days to audit-proof your deductions and ensure compliance with IRS requirements.

It may seem like there are all kinds of rules and intricacies to the tax code for timeshares. And it’s true. The IRS, or perhaps Congress, likes to make things complicated. That’s why working with an experienced tax professional can help you to maximize your deductions and minimize your tax liability when you work within the code.

But ultimately, make your timeshare not only a relaxing adventure but also a great tax deduction.

Guidelines for Maximum Tax Benefits

⦁ Exclusive use for business and personal lodging. With no rental, you maintain eligibility for business and personal tax advantages without suffering from the vacation-home rules.
Business deductions for lodging expenses. Under IRC Section 162(a)(2), ordinary and necessary business expenses such as timeshare lodging are deductible when traveling for business.
Personal use. Personal use of a deeded timeshare does not qualify for business deductions, but it can qualify as a second home eligible for second-home mortgage interest deductions.

If you would like help with maximizing your tax deductions and thereby limiting your tax liability, contact Saunders Tax & Accounting at www.SaundersTax.com or call us at 301-714-2071. Open Monday – Thursday 9 am to 5 pm. Awarded the Hagerstown Chamber of Commerce “2023 Small Business of the Year” and Hagerstown Hotlist 2024, we have been providing a Less Taxing Life and More Prosperous Solutions for 40 years!

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