ANSWERS: 1
  • A reverse mortgage does not have the same deductions under the U.S. Tax Code as a traditional mortgage. The Internal Revenue Service (IRS) does allow an interest deduction for reverse mortgage interest. However, there are stipulations.

    Mortgage Interest Deduction Features

    Mortgage interest is deductible, but the payment toward the mortgage principal is not. The taxpayer can only deduct interest on the first $100,000 of your mortgage principal.

    Deduction Requirements

    To deduct mortgage interest, you must be a liable party to the loan, the mortgage is secured by the home, and you owe a debt to the lender in the form of a mortgage.

    Reverse Mortgage

    The borrower holds the title on a reverse mortgage until the mortgage debt is "due." Until then, the borrower only pays interest on the amount of money that he was given at the loan closing. The IRS considers the reverse mortgage principal an "advance", not a true mortgage.

    Significance

    The traditional mortgage is due with interest after closing. The reverse mortgage isn't due until the end of the loan term, but the interest is capitalized in the meantime. The mortgage interest is not deductible until the loan is due.

    Allowable Reverse Mortgage Interest Deduction

    A reverse mortgage interest isn't deductible until the end of the loan term. That is, you can take a deduction for the mortgage interest when you pay off the reverse mortgage.

    Source:

    IRS: Home Mortgage Interest Deduction

    Investopedia.com: The Mortgage Interest Tax Deduction

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