Your Tax Questions Answered

Time to Sell the Timeshare

Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.

By Kevin McCormally, Editorial Director, Kiplinger.com

January 1, 2010

QUESTION:

We have owned a timeshare for three years. We have never stayed in the timeshare or rented it out. We are considering selling the unit next year. It would appear to me that we can consider this property an investment property and report a long term profit or loss from the sale on our income taxes.

KEVIN ANSWERS

The answer is easy if you make a profit. The gain would be a long-term capital gain since you owned the asset for more than a year before the sale. The question of a loss is tougher. The loss on the sale of a timeshare used for personal use is clearly not deductible. If you could show that you bought the timeshare with the intention of making it a rental -- probably tough since you never rented it out -- you could likely justify the deduction of the loss as business loss. If you could show that you purchased the timeshare with the intent of making a profit upon ultimate sale, you could argue that it was an investment (bolstered because you never used it for personal use) to justify claiming the loss. I’m sorry I can’t offer a more definitive answer to the “grey area” question.

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