If you bought a timeshare with help from a mortgage, you could claim a mortgage interest deduction on your taxes. The Internal Revenue Service (IRS) allows qualified individuals to write off the interest on a second home’s mortgage, provided that the specific second home has cooking and sleeping areas, as well as a bathroom.
Aside from satisfying the requirements for a second home, in order to claim the interest deduction, your timeshare property should likewise satisfy the debt and time requirements. This, according to legal professionals with extensive experience in timeshare issues such as selling, buying, and foreclosure on timeshare property.
Understanding Mortgage Interest Deduction on Timeshare Properties
The interest you paid on a mortgage to purchase your timeshare is deductible under certain conditions. The IRS permits deductions for mortgage interest you paid for your primary residence and another house, like a vacation home or a timeshare property.
In general, for a mortgage interest to be completely deductible, your total debt should not be higher than $1 million of your mortgage debt and your home equity debt should not be higher than $100,000. You could face more limitations if your total debt is higher than your timeshare’s fair market value. But if, for instance, you have over $1 million in mortgage debt, your timeshare mortgage interest will not help reduce your taxes.
If You Have Multiple Properties
Likewise, you could only deduct interest associated with your primary residence if you have multiple properties such as your primary residence, a timeshare, and a vacation home. For instance, let us say you do not incur interest on your primary residence, you would only still be allowed deduct interest on one of your other two homes. You, however, do have the option of changing your qualifying homes from year to year.
In addition, if you used a mortgage to fund timeshare weeks at various timeshare resorts, you could only deduct interest on one resort. On the other hand, if you own different weeks in only one timeshare resort, those combined weeks could qualify as a second home. You would have a better chance of claiming the deduction though if your timeshare weeks are fixed and contiguous, instead of floating. Meanwhile, if you have your timeshare property rented out, you need to use it for either 14 days or 10% of the time you rent it, whichever is longer.
Claiming the Deduction
For you to claim your mortgage interest deduction, you need to file a Form 1098, which shows the interest you paid for your timeshare mortgage. You also need to itemize all your tax deductions. This replaces your standard deduction. Therefore, if your itemized tax deductions exceed your standard deduction, make sure to claim your mortgage interest deduction.
Yes, you could deduct interest on a timeshare property you own. But this only applies if your timeshare is deeded, is under a mortgage, or is secured by the funded timeshare. Depending on your specific circumstances, you could claim mortgage interest on two homes, which includes your primary residence and another home.