1098 Reverse Mortgage

[MissyGirl2]

We had our first reverse mortgage October 2019 and refinanced with a 2nd reverse mortgage June 2021.  I just received a 1098 from both lenders, which happen to be the same lender but in different states. 

My question is do I file the two 1098s on my tax return because there are mortgage insurance premiums and what about the outstanding mortgage principal, two different amounts.  Do I file a 1098 only once or both separately and add the amounts or what? 

BTW, never had to do this until now.

[KrisD15]

You do not enter those 1098 Forms.

They do not report interest you paid.

With a reverse mortgage, you are not paying interest on a loan to purchase a home, instead you are given a loan based on the value of the property. 

Unless you make payments, the interest is paid when the property is sold. 

If you take out a Reverse Mortgage and don't make payments until the house is sold, there is no interest to claim and none of the Mortgage Insurance Premiums can be claimed.  

Mortgage Insurance Premiums on a new mortgage is treated similar to interest, either claimed the first year of an original loan, or spread out over the life of a refinanced loan. 

Since there is no term as to the time the reverse mortgage must be paid back, it is next to impossible to allocate any of the Mortgage Insurance Premiums to any payments you make. 

If you do make a payment, you could ask the Lender if any interest is being applied to the payment, and if so, how much. 

That amount might be deductible depending on how much the reverse mortgage amount is compared to the original "acquisition debt" you have.  

That means if you borrowed 100,000 to FIRST purchase the home, only 100,000 of debt counts as "acquisition debt" so only that PORTION of interest would be deductible. If the reverse mortgage paid you 200,000, only half the interest would count and that would only be if the Lender applies any of the payment to interest. 

According to the IRS:

"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. Generally, any interest (including original issue discount) accrued on a reverse mortgage is considered interest on home equity debt and isn’t deductible."

IRS PUB 936

[MissyGirl2]

Yes, thank you that works.