Is a Timeshare an Asset or a Financial Liability?

Many people purchase timeshares for lifestyle reasons, but this decision often leads to confusion about its financial classification. Owners are frequently unsure if they hold a tangible asset, like real estate, or something else entirely. The uncertainty stems from the conflict between the idea of property ownership and the ongoing financial realities that accompany it.

The Accounting Definition of an Asset

From an accounting perspective, an asset is a resource with economic value that an individual or company owns with the expectation that it will provide a future benefit. For something to be classified as an asset, it must represent a probable future economic benefit and be capable of being reliably measured and converted into cash. A classic example is a residential home, which can be sold to realize its market value.

In contrast, a liability is a financial obligation owed to another party, representing a future sacrifice of economic benefits. Think of a mortgage on a house; it is the debt that must be paid off over time. The house itself is the asset, while the loan used to purchase it is the liability.

Timeshare Valuation and the Resale Market

A primary reason timeshares struggle to meet the definition of an asset is their performance in the resale market. When purchased from a developer, the price is often inflated to cover marketing and sales commissions, causing immediate and severe depreciation. The secondary market for timeshares is saturated, with supply far exceeding demand, which drives resale prices down dramatically.

It is common to see timeshares listed on platforms like eBay for as little as $1, or even offered for free, with the seller hoping to offload the responsibility of the annual fees. This means that owners looking to sell often face losses of 50% to 90% of their original investment. While certain high-demand weeks at premium branded resorts may retain some value, these are exceptions rather than the rule.

The challenges of the resale market are compounded by scams targeting desperate owners. These fraudulent operations often charge significant upfront fees with false promises of a quick sale, further eroding any potential financial return.

Ongoing Costs as a Financial Liability

The perpetual costs associated with timeshare ownership firmly place it in the category of a financial liability. The most significant of these is the annual maintenance fee, a mandatory payment to cover the resort’s operational expenses, from landscaping to staff salaries. According to the American Resort Developers Association (ARDA), the average annual maintenance fee was $1,480 in 2024.

These maintenance fees are not static and tend to increase annually, often at a rate that outpaces inflation. This perpetual and escalating payment stream represents a long-term financial obligation for the owner, regardless of whether they use the timeshare.

In addition, owners can be hit with special assessments. These are one-time charges levied to cover major, unexpected repairs or renovations, such as roof replacement after a storm. These assessments can amount to thousands of dollars with little warning, adding another layer of financial unpredictability.

Tax and Estate Considerations

The tax treatment of a timeshare complicates its standing as an asset. When an owner sells a timeshare for a loss, the Internal Revenue Service (IRS) generally considers this a personal loss, which is not tax-deductible. This means the owner cannot use the financial loss to offset other taxable gains.

A minor tax benefit may exist in the form of property tax deductions. If the annual maintenance fees include a separately stated amount for real estate taxes, that portion may be deductible. However, this amount is a small fraction of the overall fee for most owners.

From an estate planning perspective, a deeded timeshare becomes part of the owner’s estate. Many timeshare contracts contain a “perpetuity clause,” which transfers ownership and its obligations to the owner’s heirs. This means heirs inherit not only the right to use the vacation property but also the unending responsibility for the maintenance fees, often leading them to refuse the inheritance.

Timeshare Classification in Bankruptcy

The treatment of a timeshare during bankruptcy provides a clear legal and financial classification. When an individual files for bankruptcy, they must list any timeshare interest on their bankruptcy schedules. In a Chapter 7 bankruptcy, a court-appointed trustee will almost always “abandon” the asset. This means the trustee concludes that the cost of selling the timeshare would not generate any meaningful funds for the creditors.

The trustee’s abandonment does not automatically free the owner from their contractual obligations. While the bankruptcy discharge may eliminate past-due maintenance fees and any mortgage balance, it does not terminate the ownership contract itself. The owner emerges from bankruptcy still legally tied to the timeshare and remains responsible for all future maintenance fees that accrue after the bankruptcy filing date, until the timeshare company eventually forecloses on the property.