In 1983, we bought 100 shares in a Montauk timeshare for $15,300. We sold them last year for $10,000. That's a $5,300 capital loss, right? Our average annual maintenance fee, in the 30 years between purchase and sale, was $550. We never deducted these fees. Can we use the entire $5,300 capital loss or is there a limit?
The answer depends on whether you used the timeshare yourselves or rented it to tenants. If you used it yourselves, you have no capital loss on the sale.
"You can claim a capital loss on an investment asset, but not on a personal asset," says Michael Alderman, an East Meadow tax accountant. If you sell a personal asset like a house or a timeshare at a profit, that profit is taxable as a capital gain. But if you sell it at a loss, the loss isn't deductible. Similarly, if the timeshare was a personal asset, the maintenance costs weren't deductible.
If you rent your timeshare unit to tenants, maintenance fees are a deductible expense, says Alderman. However, your total expense deduction cannot exceed your gross rental income.
But even if you rented it to others when you were not using it, a timeshare can't easily be claimed as a rental property. Timeshare owners usually rent to tenants for one week at a time or less, explains David H. McClintock, a timeshare tax expert -- and the average rental period to a particular tenant must exceed seven days to meet the IRS definition of a "rental business."
The bottom line You can't claim a capital loss on the sale of a personal asset.
CORRECTION: An earlier version of this column incorrectly stated the tax deductibility when renting your timeshare to tenants.
TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747, or email firstname.lastname@example.org. Include your name, address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.