Uncle Sam might not have laws forcing you to use your vacation time, but you can use the tax code to have your timeshare subsidized by the government. The mortgage interest deduction applies to not only your main home, or the home you normally live at, but also a qualifying second home.
Timeshare as Second Home
Assuming your timeshare has sleeping, kitchen and bathroom facilities, it qualifies as a second home for the purposes of the mortgage interest deduction. However, you also have to meet the personal use requirements to deduct the interest. If you rent out your timeshare, you have to use it for the longer of 14 days or 10 percent of the time you rent it. If you don't rent it, you can deduct the interest as a second home even if you don't use it at all during the year.
Personal Use Rules
The IRS sets special rules for determining personal and rental use of a timeshare. Specifically, you're only treated as owning the home for the portion of the year in which you're entitled to use it, so you aren't treated as renting it out the remainder of the year. For example, if you own a one-week timeshare, you aren't treated as renting it out the other 51 weeks of the year. In addition, if you exchange your time share for use at another timeshare, that week is still treated as personal use.
You can deduct the interest on up to $1 million ($500,000 if married filing separately) of mortgage debt on your main home and your second home combined. You're limited to only one second home at a time, so if you're already deducting the interest on an existing second home, you can't add on your mortgage interest from your timeshare. Unfortunately, you can't use two second homes instead of a main home and a second home, so if you've already paid off the mortgage on your main home, you can't use a vacation home and your timeshare.
When you file your taxes, you have to forgo your standard deduction if you want to claim the interest on your timeshare mortgage. Schedule A lists the itemized deductions, including mortgage interest. If you receive a Form 1098 for the interest, report it on line 10 of Schedule A. If you don't receive a Form 1098, report it on line 11. When you report the interest, combine it with any interest you can deduct on your main home.
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