Is Reverse Mortgage Interest Tax Deductible?

Reverse Mortgage Tax Deductions?

So, is Reverse Mortgage Interest Tax Deductible? Any seasoned reverse mortgage loan officer can confirm that this is a pretty common question.  Is reverse mortgage tax deductible?

The quick answer is “no”, but let’s explain why.  It should also be noted that the owner of this website is NOT a CPA.  You should always consult a tax professional for sound tax advice.

Is Reverse Mortgage Interest Tax Deductible
Is Reverse Mortgage Interest Tax Deductible

However, this is a pretty basic question.

Why isn’t reverse mortgage interest tax deductible?

When you do a traditional loan, the homeowner is actually making payment.  They are actually paying mortgage interest.  A reverse mortgage is a loan.  Hence, there is mortgage interest.  The caveat here and one of the biggest pros of reverse mortgage is that there are no monthly payments due until you pass away.  Then, the loan is repaid during a specified time frame depending on whether your heirs are selling the home or trying to keep the home and refinance it.  Only at this time is there mortgage interest being paid.

So, if you’re not paying any mortgage interest in any given year, the IRS does not allow you to claim this write off.

Is there any time where reverse mortgage interest MIGHT be tax deductible?

While the reverse mortgage loan does not require any monthly mortgage payments, some HECM borrowers do make periodic payments.  If you’re actually making a payment on your reverse mortgage, you may be able to claim this as a legitimate tax write off.  Again, always check with your tax advisor for a more detailed and up to date answer.

Another issue is that the IRS considers reverse mortgage debt to be home equity debt.  This may present separate limitations on this deduction.  In regard to this rule, you can only deduct interest from the first $100,000 of home equity that you borrow that is for anything other than home improvement.

Obviously, tax code can change periodically.  Please check with a licensed tax professional for the most recent rules surrounding the question “is reverse mortgage interest tax deductible”.

Want more info from Reverse Mortgage Loan Advisors?

For more in depth info on all Reverse Mortgage subjects, check out:

Reverse Mortgages in 2020

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