Is Timeshare Mortgage Interest Deductible?

Timeshare ownership often brings questions about its financial implications, particularly regarding tax deductions. A timeshare represents a shared form of property ownership or the right to use a vacation property for a specific period each year, typically in resort units. A common inquiry among timeshare owners involves whether the interest paid on a timeshare mortgage can be deducted from their federal income taxes.

Understanding Eligibility for Deduction

For timeshare mortgage interest to be deductible, the timeshare property must qualify as either your main home or a second home for tax purposes. A “qualified residence” includes a house, condominium, mobile home, boat, or similar property, provided it has sleeping, cooking, and toilet facilities. You can designate one additional property, beyond your main home, as a second home for the purpose of deducting mortgage interest.

To meet the criteria as a qualified second home, you must generally use the timeshare for personal purposes for a certain number of days, or if rented out, personal use must exceed the greater of 14 days or 10% of the total days rented at fair market value. If the timeshare is not rented out at all during the year, it can still qualify as a second home. The mortgage debt itself must be secured by the timeshare property.

The interest must be on “acquisition debt,” which is defined as debt incurred to buy, build, or substantially improve your main or second home. Interest on home equity loans or lines of credit (HELOCs) is generally only deductible if the borrowed funds are used to buy, build, or substantially improve the home securing the loan. If the funds were used for personal expenses unrelated to the property, such as paying off credit card debt or for other personal living costs, the interest is not deductible.

Calculating the Deductible Amount

Even if your timeshare mortgage interest meets the eligibility requirements, there are limits on the amount you can deduct. For mortgages taken out after December 15, 2017, the deductible interest is limited to the interest paid on the first $750,000 of qualified acquisition debt. This limit applies to the combined amount of mortgages on both your main home and your second home. For example, if you have a primary mortgage of $600,000 and a timeshare mortgage of $200,000, the total debt of $800,000 exceeds the $750,000 limit, so you can only deduct interest on $750,000 of that combined debt.

Higher limits apply to mortgages incurred on or before December 15, 2017, where the deduction is limited to interest on the first $1 million of qualified acquisition debt ($500,000 if married filing separately). It is important to note that the interest deduction is an itemized deduction. You should compare your total itemized deductions to the standard deduction amount to determine which option provides the greater tax benefit.

Claiming the Deduction on Your Tax Return

To claim your eligible timeshare mortgage interest deduction, you will report it on Schedule A (Form 1040), Itemized Deductions. Your timeshare mortgage lender should issue Form 1098, Mortgage Interest Statement, if you paid $600 or more in mortgage interest during the tax year.

You will typically enter the amount of mortgage interest paid, as shown in Box 1 of Form 1098, on the appropriate line of Schedule A (Form 1040). If you paid interest that is not reported on Form 1098, you may still be able to deduct it by entering the amount on a different line on Schedule A. It is important to maintain thorough records, including Form 1098 and any other loan statements, to support your deduction in case of an inquiry from the tax authorities.