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Timeshare Taxes and Obligations of Ownership – The Good, Bad and Ugly

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Over the years, we’ve spent a lot of time trying to better understand the needs of timeshare owners. Doing so has improved our ability to consult disgruntled owners with different frustrations. It has also allowed us to help potential buyers fully grasp what they can expect after purchasing a timeshare. Labeling failed ownership as an epidemic in our country might be a bold statement, but far too many fractional owners are experiencing buyer’s remorse. No matter what their disappointment entails, a majority of complaints surround a lack of clarity or misleading information during the sales presentation.  

If you’ve ever been to one of these presentations, then you might understand why so many people overlook the details of the contract they’re signing. The giveaways, promises, testimonials and possibilities can easily distract consumers from what they’re really signing up for. Many don’t realize a timeshare contract is eerily similar to a home mortgage. The problem is, contract obligations aren’t at the forefront of timeshare sales strategies.

Learning About Additional Expenses the Hard Way.

Once a timeshare purchase has been finalized, it’s common for new property owners to spend a good amount of their time planning their timeshare vacation instead of revisiting the details of their perpetual agreement. Unfortunately, many learn about the vague obligations of timeshare ownership as they go. While pursuing an explanation (or even some restitution) might seem like a priority, the timeshare company isn’t necessarily required to detail the specifics of your contract for you. What you can expect is a sales pitch to upgrade your experience in order to make your contract revelations worthwhile.

is your timeshare worthwhile or do you need to cancel you agreement for timeshare tax laws

Finding Answers to Timeshare Tax Questions with VOC.

Since the chances of receiving satisfactory answers from the resort are slim to none, we want to make sure you’re able to gain clarity on your current situation. While the realization of annual costs and special assessment fees can be a complete bummer, there is some silver lining when it comes to timeshare taxes. With that being said, let’s take a look at the good, bad and ugly of tax season with a timeshare property.

The Ugly: Taxes on a Delinquent Timeshare.

When fractional owners realize their timeshare agreement isn’t what they expected, their initial gut reaction is to stop paying the resort. Taking a stance and demanding a requital for the inconvenience or misunderstanding is not the best of ideas. Although some smaller operations may be willing to listen and negotiate a resolution, not many timeshare companies are going to conform. In the long run, they know you’ve adhered to a perpetual agreement that locks you in as a fractional owner at their resort. There’s not much you can do or say to relinquish you of your obligation to pay.

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Similar to a home mortgage, if a timeshare owner refuses to pay for the property or its included fees then they can face delinquency. The resort is not required to hold your hand during this process and can swiftly move to foreclosure. As you may know, this can drastically impact your finances and credit.

If a foreclosure were to occur, you’ll most certainly need to discuss your timeshare taxes with a certified public accountant (CPA). If you’re wondering where to start, the timeshare company will typically mail a 1099-C form for the “Cancellation of Debt.” It’s the fractional owner’s responsibility to report the occurrence accordingly. Refusing to pay can end up costing an exponential amount of time and money, especially during tax season.

The Bad: Annual Timeshare Taxes on the Property.

Although most fractional owners won’t experience penalties for delinquency, all are subject to pay annual taxes on the timeshare property. Just like personal residences, local governments levy property taxes on timeshares. The tax rate for each property varies, depending on the assessed value of the timeshare. If improvements are made to the resort or the local travel market increases, then tax rates will continue to rise. Some owners are protected from rising costs with a guaranteed fee – but only if it’s a perpetual guarantee.

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Having to pay annual timeshare taxes can be surprising when owners were only aware of the monthly mortgage cost. It can also become financially draining when coupled with other unexpected fees that weren’t initially budgeted for. It’s important for potential timeshare owners to understand that their payment obligation will always include the mortgage, maintenance fees, management costs, assessments, homeowner’s insurance and timeshare taxes on the property. Reviewing the contract will help you determine which of these costs are bundled in your agreement or listed as additional expenses.

The Good: Timeshare Tax Deductions or Write-Offs

Although there is some negativity surrounding timeshare taxation, there are also some perks. Every year, most timeshare owners are able to retain a portion of the overall expense by filing appropriate tax deductions. But prior to counting your chickens before they hatch, it’s important to understand not all unexpected expense qualify for a deduction. For example, timeshare closing costs aren’t usually tax deductible. Either way, you should still work with a tax consultant to add expenditures like this to the total cost of your week for timeshare tax purposes.

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Similar to homeownership, property taxes can be an easy write-off during tax season. If a timeshare owner pays some of the property tax, they’re able to write it off as an itemized deduction on Schedule A using a 1098 tax form. The IRS gives fractional owners the right to deduct property taxes based on the actual value of the unit. If you plan on taking advantage of this, make sure you itemize the timeshare in order to claim it as a write-off.

If the property taxes aren’t billed to you directly (or explained on annual billing statements), you may not be eligible for a tax write-off. This is normally true when the entire resort has been assessed and billed as one parcel. In other words, timeshare taxes aren’t being assessed against your individually purchased week so you won’t be able to deduct them. The good news is, there isn’t a limit on the number of timeshares you can claim a deduction for. If one or two aren’t eligible, you can still compile the deductions of additional properties on your tax returns.

Aside from property tax, interest paid on a loan used to buy the timeshare usually is deductible. The tax law allows deductions for nearly all interest expenses that an individual pays on a primary home and one other home. This “other home” can be a timeshare or other vacation residence. If you happen to have mortgages on more than two eligible homes, then you can select two you’d like to use as deductible interest. Remember to revise your choices every year.

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What Won’t Fly as a Deduction?

While additional fees may seem like obvious write offs, most expenses will remain expensive. Maintenance fees, special assessments, membership fees and taxes used for resort improvements cannot be itemized as deductions. Even exchange fees are treated as personal expenses and not deductible. If you plan on deducting homeowners insurance, then you’re going to need to prove that you’re generating rental income from the property. If you’re unsure of anything, it’s important that you always consult a tax advisor to ensure you’re making claims and filing correctly.

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Before you buy a timeshare, you should always thoroughly understand the commitment. Although timeshare ownership can be an amazing experience for everyone involved, the unexpected can hinder vacations for years to come. If you’re tired of paying for something you don’t want, we’d love to talk with you about your options. Otherwise, we hope this article gave you a better understanding for timeshare taxes and the obligations of vacation ownership.

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