How to enter two 1098's for home of deceased father refinanced to pay off by children.

[oddnok]

My father passed away in 2023. He had a reverse mortgage on his home which my sister and I refinanced to pay off.  The house was in his name and now in our names. This was all occurred during 2023.

We received two 1098s, one with the payer/borrower listed as "Estate of Fathers Name" from the reverse mortgage lender and another from our new lender with mine and my sisters names listed as payer/borrower. The property securing the mortgage is the address of the property and same on both 1098s. 

He has stopped receiving monthly payments years ago and the account was accumulating monthly interest. He was paying nothing. We payed off all of the accumulated interest when we refinanced which was listed on the 1098 from the reverse mortgage company.

My question is can my sister and I list both of the 1098s and the mortgage interest on our taxes, split 50/50?

[DianeW777]

No, interest paid on a reverse mortgage is not deductible. However, you can deduct the mortgage interest from the refinanced loan if it is secured by the house inherited from your father. It could be considered your second home and would be allowed if you itemize deductions.

Reverse Mortgage According to IRS: (IRS Publication 936)

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."

The standard deduction is shown below for your convenience.  If your itemized deductions are greater than the standard deduction then you should use those.  The expenses most commonly associated with itemized deductions is medical expenses greater than 7.5% of your income, property taxes, state and local income tax or sale tax, mortgage interest and donations.

For single taxpayers and married individuals filing separately, the Standard Deduction is $13,850 in 2023. 

For married couples filing jointly is $27,700, and  

For heads of households, the Standard Deduction is $20,800

  

If you're at least 65 years old or blind, you can claim an additional deduction in 2023 of:

• $1,850 for single or Head of Household
• $1,500 for married or Qualified Surviving Spouse.

If you're both 65 and blind, the additional deduction amount is doubled. 

[oddnok]

Thank you for your help.

I understand that the current refinanced loan interest is deductible. It is a second home and I do itemize.

My big question is about the reverse mortgage we refinanced. After reading the IRS 936 publication, I believe what you referenced applies to those who currently have a reverse mortgage and I agree the interest accrued while the loan is in place would not be deductible. 

Researching I found this "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." Here is the IRS FAQ where it is referenced

We payed off the reverse mortgage in full and used all the proceeds to buy (refinance) the home which would meet the deductible limit on home equity debt correct? If this is the case wouldn't the interest accrued on the reverse mortgage be deductible?

Thank you for your help. Doing research I am getting conflicting information and want to make sure I handle this correctly.