Tax Benefits of Renting a Timeshare
Renting a timeshare, instead of owning it, has numerous tax advantages. Renting may save you sales tax as well as property tax, while simplifying the process of filing your annual tax returns.
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Sales Tax
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A major source of your savings when you rent a timeshare as opposed to buying it is the far lower sales tax you will likely have to pay. If, for instance, a particular jurisdiction levies a 1 percent tax on real estate transactions, the purchase of a $200,000 summer home would result in a tax bill of $2,000. A short term rental, on the other hand, will likely not carry any taxes whatsoever. Just as there is no tax liability for the renter of an apartment, the renter of a timeshare will not owe any taxes. The owner of the property, on the other hand, will have a tax liability as a result of the rent income.
Property Taxes
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An owner of a timeshare will have to pay a portion of the unit's property taxes. Usually the tax responsibility of each individual owner is determined by the proportion of her ownership. If you own a tenth of the unit's usage rights, for example, you will likely be responsible for a tenth of the local property taxes. You may make other arrangements at the time you buy a timeshare, however. You may have usage rights at the most favorable time of the year and therefore agree to pay a larger proportion of local property taxes than your share would indicate. A renter, on the other hand, will not have to pay such taxes at all.
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Upsides of Ownership
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On the other hand, owning a timeshare also comes with certain benefits. Your share of property taxes on the unit is tax deductible. If you have taken out a mortgage to buy timeshare rights, the interest on such mortgage payments are also deductible from your taxable gross income.
Renting Your Timeshare
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If you own a timeshare and rent it out for part of the year, the rent income is tax-free if a specific set of conditions is met. If the combined rental days for all the owners of the timeshare are less than 15 and you personally use the unit for more than 14 days, the rent income is not taxable. To take advantage of this rule, you must keep track of how many days the other owners rented out the unit and document that the total number of rental days are below 15.
If this rule does not apply, and you must report your rent income, part of he expenses you pay for the timeshare are deductible from the rental income you obtain.
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References
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