Huge 1098 interest and mortgage insurance reported after paying of deceased parent's reverse mortgage

[PoconoRick]

Mom had a reverse mortgage for 10 years. House was always in the name of the trust but interest always reported under her SS#.  She passed away and we paid off the mortgage balance of approx $350k and reverse mortgage company reported all the interest paid ($102k) and mortgage insurance premiums ($28k) to my mothers SS# in the year she died.  She did not get monthly payments from the reverse mortgage. The funds were used to payoff her existing mortgage balance 10 years ago.

My questions are:

1. Since the trust paid of the reverse mortgage after her death would the trust take these deductions on it's return?

2. Would we file a nominee from the interest reported to her personal SS# to the trust's EIN?  How ?

3. Would we need to report this interest on her personal / final return and then show it as an expensive going out to the trust or just ignore it on her return?

Any other help or advice is welcome!

Thanks

[NCperson]

@PoconoRick here is the broader challenge:

since a reverse mortgage is home equity debt, unless the payments to your Mom were used to buy, build, or substantially improve the home that secures the loan, the interest, when paid, is not deductible!

can you substantiate that the money she received each month was NOT used for normal living expenses and in fact was used to buy, build or substantially improve the home?

so this could simplify all your questions as none of the interest may be deductible by any party. 

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

[PoconoRick]

Thanks for the reply.. NO monthly payments on the reverse mortgage.. The funds from the reverse mortgage were used to payoff her 1st mortgage 10 years ago.

[NCperson]

@PoconoRick can you walk me through that in a little more detail?  Reverse mortgages are normally a  way to receive monthly payments for living expenses for someone who is 'house rich and cash poor'.

so what you are stating is that 10 years ago, the 1st mortgage balance was paid off by a reverse mortgage and that for 10 years the mortgage company just kept track of the interest that accrued? and then the accrued interest (and the loan amount) were paid off shortly after she passed? 

in that case, the reserve mortgage loan balance would be "acquisition debt" and I could see that the interest would be deductible upon payment.  

mortgage insurance premiums are no longer deductible, so that simplifies some of your decisions. 

[PoconoRick]

That is correct..  With a reverse mortgage you can take a lump sum payment or monthly payments.. Most older people that have a mortgage take a lump sum to payoff the mortgage so they no longer have payments until they die. (but no monthly pay out payments)  and yes they kept track and reported all the interest when it was paid off.   The properties in the trust (This one and 8 others) are now all rentals and with the stepped up basis and reset depreciation are operating with a net loss so this deduction would just be adding to that loss being carried forward.. So, I'm thinking even if it's borderline to take the deduct in the trust I don't have much to lose because if I got audited 5 years from now and they disallowed it the properties would be only be carrying forward the loss so there shouldn't be any penalty (Just the loss of the deduction being carried forward)

[Mike9241]

also to clarify, after paying off the prior mortgage she received no additional funds; the RM amount did not exceed the prior mortgage balance; the original mortgage was never refinanced; and she got no periodic payments from the RM company.