The Timeshare Loss Isn’t Deductible,… Sorry!

San Francisco CPA Geoff Kulik at Tahoe
Walking a Trail at Lake Tahoe

Our client bought a timeshare interest in snazzy new ski resort by Lake Tahoe a few years ago.  He had the right to use it 1/4 of the year, and enjoyed staying in his own place when he went to Tahoe for skiing, gambling, and the other activities of the area.  When he wasn’t able to use the condo himself, the onsite management company rented it out and he received some cash to help with the mortgage payments and management fees.

After the recession hit, the rentals slowed down, and our client also started spending more time in other activities.  He decided that the high monthly management fees and the ongoing mortgage payment just wasn’t worth it anymore.

Apparently he wasn’t the only owner with the same idea.  There’s lots of supply and little demand for the timeshares in his complex on the resale market.  His timeshare is worth tens of thousands of dollars less than he paid.

He came to us figuring that he’d be able to use the loss to offset gains in his other investments and maybe even some of his salary income.

He can’t. And, I hated to be the one to tell him the news.

Unfortunately, most timeshares are considered personal property, like your house or car.  When you have a loss from the sale of personal property, that loss doesn’t come off your taxes whether your sell immediately or after using the car for 15 years.

The fact that you sometimes rented out the timeshare to strangers, doesn’t move the IRS.

It’s possible if you never had used the property yourself, and can show that you bought the property only as investment or for a rental business, you could deduct a loss on the sale of the timeshare. But, the IRS is very suspicious of timeshare losses and you would want to make sure that your records are convincing!

Worse, for our client, if he client decided now to reclassify the timeshare now as rental property, stopped using it for personal vacations, and created a business (LLC or other entity), he couldn’t declare the previous decrease in value as a business loss.  The business would carry the property on its books at today’s fair market value, not at the high value our client paid for it years ago.

A loss from the sale of a timeshare just sounds like something that should be deductible from your taxes but isn’t.  It joins letting a charity auction off a week at your vacation lodge as an action that sounds and feels like it should trigger a nice tax break.  But, it doesn’t!