Reverse mortgage and points

[TAXMAN]

I have not seen this before. I have a TP who got a reverse mortgage 220k. He paid 8k in points to get loan. He died 6 months later. Estate was required to pay off points and interest when they sold the house. I know the interest is limited to interest on 100k. What I am not sure is what to do with all these points? Include them as interest and limit to 100k? Put them on deceased tp final return? Allocate them to tp and the estate? Help is needed. BTW this all occurred in the same tax year. What do you think would be the correct way to handle the points?

[jainen]

>>Put them on deceased tp final return?<<

Decedent didn't pay them, so no deduction there! According to Pub 936, "Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full."

[kcjenkins]

" I have a TP who got a reverse mortgage 220k. He paid 8k in points to get loan."

Please clarify whether he paid the 8K himself, at the time of the loan, or whether it was just accrued on the mortgage? If in fact he did actually PAY the points, that would make a real difference.

[TAXMAN]

To clarify The Points were rolled into the loan. $ dispersed to tp were 212K. TP deposited 212k into bank account per bank statement. Estate sold home paying mortgage company the 220k plus the accrued interest 3 months after he died. Does this make it any clearer. Thanks.

[TRX 1]

Are you guys beginning to see alot of these? I know there is a lot of advertising on it. Is there anything special I need to do in the software to accomadate this are do you just enter these points on the Sch A like the traditional Loan?

Doug Hughes

[kcjenkins]

OK, then, it's not on his personal return at all, then, Jainen's answer is correct.

[TAXMAN]

KC Would that mean that the points then become part of the interest subject to the 100k rule for equity loans? or could they be used in full and the remainder of the interest paid be subject to the rule? Thanks

[kcjenkins]

My understanding is that it's all lumped together on the payoff of the reverse mortgage. Have not really researched that, though, so if someone knows an exception, please let us know.

[jainen]

>>$ dispersed to tp were 212K. TP deposited 212k into bank account<<

How is this a reverse mortgage? Sounds like an ordinary cash-out home equity loan to me, even though it is in first position. And I don't think the estate can deduct qualified home mortgage interest unless a beneficiary lives there, so it will have to count as an investment interest expense.