Mortgage Interest on a timeshare

[ebarwick1]

I own a home with no mortgage and a rental property with no mortgage.  I also own a timeshare and I have over $8000 in mortgage interest for 2022.  Can I deduct this since I have no mortgage interest elsewhere?  Where would I deduct it, on Schedule A or Schedule E?

[AmyC]

Sch A mortgage interest is for your primary and secondary home, not a rental. A timeshare qualifies as a second home.

[ebarwick1]

Thanks!

[Opus 17]

There may be a problem.

Yes, schedule A mortgage deduction is for your main home and one second home.  If you have more than one second home, you can decide which second home to deduct.  And a time share is specifically listed as an allowable "second home" provided you don't rent it out.

However, a mortgage is only deductible if it is secured by the property.    This is what the IRS says,

You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

• Makes your ownership in a qualified home security for payment of the debt;

• Provides, in case of default, that your home could satisfy the debt; and

• Is recorded or is otherwise perfected under any state or local law that applies.

The question is whether your loan is perfected according to state or local law.  This usually means that your ownership and the loan are recorded at the county records office and are available for public inspection.  In most cases, you don't own any property, you own a limited right to use certain property.  So your loan might only be in the time share company's books, not recorded at the county level.  (Although if your loan is with an independent mortgage bank and not the time share company, then we can probably assume it is recorded.)

You may want to check your time share documents, or consult and enrolled agent (accountant who is licensed to practice before the IRS) to see if your loan meets your state and local legal requirements to be considered a "perfected" mortgage. 

[ebarwick1]

New problem, on the Home Mortgage Interest Worksheet, I'm asked some questions I cannot answer.  Specifically:

Length of the loan...

Did you pay points to the lender...

Total points originally paid to lender...

My late husband originally bought this timeshare (Hilton Resorts) and the paperwork I have doesn't address these questions and I can't find someone who can answer it at Hilton.  Obviously, this timeshare deserves a reevaluation but for now I just need to find these answers.  How critical is this and what if I guess and get it wrong?

[Opus 17]

@ebarwick1 

If you can’t prove you paid points, then just report zero points.  You can’t deduct points if you can’t prove you paid them.

The length of the loan only affects the points calculation, so whatever you put here will not change your tax return.

I think this is unlikely to be a deductible mortgage in any case. If you are audited, and can’t find the contract and other important paperwork, you will lose the deduction.

[DaveF1006]

Contact the administrator of the timeshare to see if you can get some type of a loan disclosure agreement since you do not already have it. It should have a record of points paid and the length of the loan. If you can't get one, then follow the advice given by Opus 17 as a safe practice.

As an FYI, another consideration must be given to fact if you are able to itemize deductions this year. In 2022, the standard deduction amounts are  $25,900 for joint filers, $19,400 for heads of household, and $12,950 for single filers and those married filing separately. $12,950. If the total of your itemized deductions are more than your standard deduction for your filing status, then this information may be crucial. 

If you don't have itemized deductions that exceed your standard deduction, then you wouldn't be able to deduct points or montage interest regardless.