Tax Implications of Buying a Timeshare Property in the U.S.

by Tax Guy - Burlington Accountant on October 6, 2008 Print This Post Print This Post

A timeshare is an ownership unit of real property entitling the holder to use the property for a specific period of time.  Assuming the timeshare is an owned share, as opposed to a right of use, there are some tax and estate planning issues one must consider before acquiring a timeshare property.

In Canada, the acquisition of the timeshare would be capital property and subject to the rules surrounding capital gains.  The timeshare may not qualify as principal residence since it would not be ordinarily inhabited by the owner and other owners would have title to the property.  Thus upon resale of the property unit, a capital gain or loss would result of which ½ would be included in taxable income in the year the property was re-sold or disposed of.  

If the plan is to hold the property and pass it along to heirs, via the will, then estate planning issues should be considered as well.  At death all property may be subject to both probate tax as well as capital gains tax.  On death all assets are deemed to have been sold and taxes must be paid on any gains.  With some planning these taxes may be avoided or deferred.

To avoid probate it is suggested that the property be registered jointly with a spouse.  Upon death of one of the spouses the property rolls over automatically to the surviving spouse and is not subject to probate.  It is not advisable to enter into joint ownership with children or other persons since any debts of other joint owners could result in claims or liens made against the property.  To share ownership with children and avoid both probate and taxes a trust may be used to both avoid probate and defer taxes.

If the property is inside the US it would qualify as US situs property and would be subject to US non-resident taxes upon re-sale.  Similarly if the timeshare is rented, a withholding tax must be withheld by the renter and remitted directly to the IRS.

The US also has an estate tax that may result in a portion of the US situs assets held by a non-resident being subject to the estate tax if certain thresholds are exceeded.

Purchasing real property or timeshares in the US can be complicated, but with some professional advice and proper planning the tax consequences can be reduced or managed.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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