 | A reverse mortgage (RM) is a type of loan for homeowners 62 years of age and older. RM’s allow owners to convert part of their equity into cash, without having to make a corresponding mortgage payment, like regular conventional loans require……… |
The RM was originally imagined as a way to help retirees who were house rich and cash poor. It has since evolved into a valuable planning tool to help folks supplement retirement income.
Taxes:
Because RM’s actually provide proceeds to the borrower in the form of “loan advances”, there are no taxes on the payments received, as they are not considered income.
RM’s also don’t usually affect Social Security or Medicare benefits.
The interest on RM’s becomes deductible when it is paid, which is usually when the RM loan is paid in full (upon moving, selling, end of loan period, or death). This means homeowners generally have no annual mortgage interest deduction, but receive a lump sum deduction at the end.
There are limits, such as only being able to deduct up to $100,000 home equity debt interest like that of home equity loans.
You can also deduct any amounts you pay for qualified mortgage insurance.
Feel free to contact us with questions you may have related to the tax implications of your RM...we’re happy to help!