Reverse Mortgages

Today TaxMama® hears from Dave in the TaxQuips Forum, with this question.  “How do we deduct interest on a reverse mortgage?” 

Ask TaxMama

 Dear David.  

You don’t.  

In a reverse mortgage, the homeowner isn’t paying any interest.  They are receiving loan draws on a monthly basis. All the interest is deducted at the end, when the mortgage is paid off.  

Remember, a cash-basis taxpayer only gets deductions when s/he PAYS a bill. Here is how the IRS explains it.  

When I see all those beloved old actors doing commercials for reverse mortgage lenders, it chills my heart. These loans are not a benign and helpful as they seem to be. They can cost the senior borrower their home, if they are not careful – even though the big print says they can stay in the home until they die. It’s not exactly true.  

And if you’re a couple, make sure the title to the home AND the mortgage is in both names. Otherwise, after the owner on title dies – the other spouse might get kicked out. Please, do your research before signing up for one of these deceptively helpful loans.  

Better yet, get a nice, healthy, low interest line of credit against the house and use that when you need money, even to pay mortgage payments. You have more control of the funds – especially in an emergency.  

And remember, you can find answers to all kinds of questions about reverse mortgages and other tax and business issues, free. Where? Where else? At

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