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Is reverse mortgage interest deductible

Forum|Forum|7 years ago
June 4, 2019
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Best answer by MargaretL

It is not - unless you paid off the loan in full.

Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt.

However, for reverse mortgages, you can deduct amounts you paid for qualified mortgage insurance. The insurance must be in connection with home acquisition debt- the deduction is not available for the portion relating to other types of indebtedness, such as home equity indebtedness. Also, the insurance contract must have issued after 2006.

For more information, please refer to IRS publication 936, page 8.

MargaretLAnswer

Level 12

It is not - unless you paid off the loan in full.

Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt.

However, for reverse mortgages, you can deduct amounts you paid for qualified mortgage insurance. The insurance must be in connection with home acquisition debt- the deduction is not available for the portion relating to other types of indebtedness, such as home equity indebtedness. Also, the insurance contract must have issued after 2006.

For more information, please refer to IRS publication 936, page 8.

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robertballou2622

Level 2

It is still not clear to me that any of the Mortgage Interest or MIP I accrued on my reverse mortage is deductible now that I've sold my house. I received a Form 1098 from the lender showing the total amount of interest received from the payer in Box #1 and MIP premiums in Box #5. If any of this is deductible, how many years can I spread this deduction out?

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Islandbob

Level 2

How to spread the enormous amount of interest paid on my reverse mortgage as reported on form 1098 by the lender to benefit me tax wise for several years.??

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Anonymous

The relevant IRS Publication is 936. Page 5 reads to me as a "no" - not deductible

Reverse mortgages.

A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive isn't taxable. Any interest (including original issue discount) accrued on a reverse mortgage is considered home equity debt and isn’t deductible.

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NewRicky

Level 2

What if the reverse mortgage is for purchase of new home and one pays the interest on the reverse mortgage on a monthly basis? Would this be considered payment acquisition debt and therefore be considered tax deductible? My guess is that the mortgage company would have to issue a 1098 for interest paid in that year, and that it would be tax deductible for up to a limit of $750k over the lifetime of the loan, right?

Critter

Level 15

Are you sure you have a reverse mortgage and not an Equity Loan (HELOC) ? Normally there are no payments due on a reverse mortgage.

Reverse mortgages are paid off in single payments, not in installments, when they're due. Your reverse mortgage lender doesn't expect its loan to be paid off until you actually do move out of or sell your home, or die.

Can a Relative Pay Off a Reverse Mortgage? | Home Guides ...

https://homeguides.sfgate.com › can-relative-pay-off-reverse-mortgage-58543

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Liberty1

Level 2

Is that for reverse mortgages too? We have a 1098 that says the MIP accrued is $1094.51 can I deduct that? My mother has a reverse mortgage and we got a 1098 for 2019 I’ve never seen a statement like this before do I do anything about it or just keep it ? Do I file anything? The 1098 says annual escrow and interest statement . she still alive and she still living in the house. Also We already filed her tax return but can I do an amendment to get the deduction for the MIP? Thank you

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dcb1995

Level 2

The interest portion is not deductible because it's being accrued, not paid; but the mortgage insurance amount shown on the 1098 is. My 1098 only had that figure and the "date of acquisition" field completed. TurboTax requires the original mortgage amount and date, so I used the date of acquisition for that and then used the amount of the reverse mortgage from my reverse mortgage closing statement from when I did the mortgage. I think these figures actually are irrelevant to the filing, but TT uses them to determine whether interest deduction should be capped. Since interest on a reverse mortgage is not deductible, this is a calculation TT shouldn't even be making, but since it does, you need to supply the numbers, since they are not required to be printed on this type of 1098.

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PattiF

Level 15

It does seems the some of the interest would be deductible since the initial reverse mortgage was for improvements. The interest on $100,000 would be deductible since that is the limit for home equity loans.

An accountant might be the best person to determine the interest on that amount. A proportional amount would be $36,774. You would need to have documentation of the initial use of the funds if the IRS has any questions.

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KatMC

Level 2

If the home is inherited and the heir has paid off the reverse mortgage is the heir able to deduct the accumulated PMI, Interest on the 1098 paid to acquire the home from the reverse mortgage vultures? The reverse mortgage company also tacked on attorney fees when they attempted to foreclose even though we had notified them that we were approved for a loan. Would the attorney fees be allowed under the administrator's expenses or where?

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NCperson

Level 15

suggest taking a look at the thread above your post and this IRS overview:

https://www.irs.gov/faqs/other/for-senior-taxpayers/for-senior-taxpayers

Question

Are the proceeds I receive from a reverse mortgage taxable to me?

Answer

No, reverse mortgage payments aren't taxable. Reverse mortgage payments are considered loan proceeds and not income. The lender pays you, the borrower, loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home.

With a reverse mortgage, you retain title to your home.
Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die.
Interest (including original issue discount) accrued on a reverse mortgage isn't deductible until you actually pay it (usually when you pay off the loan in full). Also, a deduction of interest may be limited because a reverse mortgage generally is subject to the limit on home equity debt, which is not deductible unless the proceeds are used to buy, build, or substantially improve the home that secures the loan. For information on deducting mortgage interest and the debt limit that applies, see Publication 936, Home Mortgage Interest Deduction.

To the extent that the money was used to replace any 'aquisition debt' or used to substantionally improve the home, then the related interest IS deductible when the reverse mortgage is paid off. If the money received from the reverse mortgage was simply used over time 'to live on', now that the reverse mortage has been paid off, the interest is NOT deductible which is the same as the normal home equity rules.

Any PMI paid should be deductible. Look at the 1098 form received. Also assumes the IRS extends the deductibility for 2022.

I'd be curious with what others may state, but I wonder if attorney fees are simply added to your cost basis. They were a cost to acquire the property, right?

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Katietsus

Level 2

It can be, but not in the way most people expect.

With a reverse mortgage, the interest just keeps accruing over time since you’re not making monthly payments. The IRS only lets you deduct mortgage interest when it’s actually paid, not when it’s simply added to the loan balance. So in most cases, people only end up claiming that deduction when the loan is finally paid off (like after selling the home or settling the loan).

If you’re someone who’s making voluntary payments toward the interest, then that portion might be deductible in the year you paid it.

I found a pretty clear breakdown here if you want the full details reverse.mortgage/interest-tax-deduction

It’s one of those things that sounds like a yes/no question, but the timing makes a big difference.

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NCperson

Level 15

@Katietsus that article is outdated and misleading. The $100,000 limit on debt referenced in the article expired at the end of 2017 (even though the article was written in 2021).

Generally, the monthly proceeeds of a reverse mortgage is used by the homeowner to live on.

If that is true, then NONE of the interest is deductible in the year the interest is eventually paid because mortgage interest is only deductible if used to buy, build, or substantially improve the home. That rule has been in effect since 1/1/18. See my post above.