Members of the Maryland Association of Certified Public...

Tax questions

March 04, 1998

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: Last June, my wife and I purchased a time-share condo in Ocean City in which four owners each get 12 weeks. Can I deduct any of the settlement costs, property taxes, etc.? Also, since I leased the property out for two weeks, can I claim anything as far as improvements on the property, since I have to pay income tax on the rent for that two-week period?

A: In order to qualify as a second residence (time-share condos included), a property must be used as a residence by the taxpayer within the meaning of the vacation home rental rules. Assuming that you pass the requirement of those rules, you may wish to treat this condo as a qualified second residence. By electing to treat it as your second home, you will be eligible to deduct mortgage interest paid, provided the amount of indebtedness that you incur on the primary and secondary residence does not exceed established limits. Points must be amortized over the life of the loan, while real estate taxes are deductible in the year paid.

Regarding your second question, assuming this is a qualified second residence, if you rent it out for less than 15 days during the year, it's not treated as a rental property at all. Any rent you receive is not included in your income for tax purposes (not matter how substantial the amount).

On the other hand, you can only deduct property taxes and mortgage interest -- no other operating costs or depreciation. (Mortgage interest is deductible on your primary residence and one other home, subject to certain limits). I recommend you review this issue with your tax adviser, who can explore more details with you.

James F. Kerich, CPA The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial, The Sun's telephone information service, at (410) 783-1800. Call 268-7736 in Anne Arundel County, 836-5028 in Harford County, 848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after the greeting. You can also submit questions by e-mail through The Sun's Web site, www.sunspot.net/tax.

Selected questions will be answered in the Business section. No questions will be answered personally.

Pub Date: 3/04/98

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