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You usually cannot deduct the loss from your taxes on a loss from a timeshare, but there are exceptions. It all depends on how you use your timeshare.
(1) A timeshare is a personal use timeshare if you use it almost 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. Personal use timeshares can be rented to strangers, but for no more than 14 days per year. The 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.
A timeshare will qualify as a rental only timeshare if (1) it is rented at fair market value to unrelated parties for 15 days or more during the year, and (2) the owners do not personally use the timeshare for more than 14 days per year or 10% of the total days rented, whichever is greater.
When determining the rental and personal use days for the 15, 14, 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 for you to satisfy the fewer-than-15-days or 10% personal use tests. For this reason, few timeshares that are rented are classified as rental only timeshares.
If a timeshare does qualify as rental only, losses incurred on its sale are deductible.
(3) A timeshare is a mixed use timeshare if (1) it is rented at fair market value to unrelated parties for 15 days or more during the year, and (2) the owners personally use the timeshare for more than 14 days per year or 10% of the total days rented, whichever is greater. Because the personal uses of all the timeshare owners are combined for these calculations, most timeshares that are rented are classified as mixed use timeshares. You allocate the sales price and tax basis between the two assets in proportion to your rental vs. personal use. You can deduct any losses you incur from sale of the rental use portion of the timeshare. When you make a conversion from personal to rental, the property's basis (cost for tax purposes) becomes the lesser of (1) the property's adjusted basis or (2) the property's fair market value at the date of conversion. If, as is usually the case, your timeshare has declined in value, you'll have to use the fair market value at conversion as the adjusted basis.
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