A timeshare property is a vacation home that several people own together and share use of. For example, 50 people might each have a one-week timeshare in a condominium in Hawaii (with two weeks left vacant for maintenance, as is typical). In the United States, people who purchase timeshares usually get legal title to it with their name on the deed, along with other owners of the same unit/share.
As alluring as it can sound to own a timeshare in Hawaii or another resort location, cost can be an ongoing concern. Maintenance and other fees can be substantial and can go up over time. The family might get tired of the place (even Hawaii can get boring), and not want to spend their vacation at the same spot each year.
As a result, many timeshare owners eventually decide to sell their interests. They are legally entitled to do so any time, just like for any other real estate. Unfortunately, timeshares are almost always sold at a loss, because:
If you do manage to sell your timeshare, but at a loss, can you at least deduct the loss from your taxes? Unfortunately, the answer is usually no. Nevertheless, there are exceptions, which depend on how you used your timeshare.
A timeshare is considered a "personal use timeshare" if you used it exclusively as a vacation getaway for yourself and your family, relatives, and friends, or you left it vacant or exchanged its use with other timeshare owners. The great majority of timeshares fall into this category.
Losses from the sale of a personal use timeshare are deemed to be personal losses and are not deductible at all. End of story.
If a timeshare qualifies as rental property, losses incurred on its sale are deductible. However, this is rarely possible. A timeshare will qualify as a rental property only if:
When determining the rental and personal use days for the 15-day, 14-day, and 10% cutoffs, you must include the combined use of all the owners of the timeshare unit. The result is that personal use by any owner of a timeshare is considered personal use by all of the owners—for example, if you use your timeshare zero days, but the other owners use it 300 days, you have 300 days of personal use.
This makes it virtually impossible to satisfy the fewer-than-15-days or 10% personal use tests. For this reason, few timeshares can be classified as rental property.
You can deduct your losses when you sell a timeshare if it qualifies as a business timeshare. There are two ways to achieve this classification:
In either case, you must never have used the timeshare for personal purposes or rented it out.
If you used the timeshare as business lodging, you may deduct a loss when you sell it as a business lodging expense. But, if you want your timeshare to qualify as business lodging, you must:
For example, if you had a timeshare in Hawaii, you could have attended a business convention or business-related educational seminar there and stayed in your timeshare. You would need to have spent a majority of your days there engaged in a business activity. Be sure to keep careful records.