REVERSE MORTGAGE

[TAXMAN]

TP had a reverse mortgage for many years on her personal residence. TP sold property and paid off note. Interest was 89k which was taken from the gross sale. Question is can tp deduct all that interest paid. It actually shows on the 1098 in box 1. There was also an entry in in box 5 for 30K which was also deducted from gross sale. Or can TP deduct these cost as a selling expense? many thanks

[Lee B]

I disagree, most reverse mortgage are used as income replacement which does not qualify as deductible interest,

unless the proceeds were used to improve the property. The amount in box 5 may be reverse mortgage origination fees?

[Lee B]

5 hours ago, Lee B said:

I disagree, most reverse mortgage are used as income replacement which does not qualify as deductible interest,

unless the proceeds were used to improve the property. The amount in box 5 may be reverse mortgage origination fees?

I looked it up, the amount in box 5 is the total mortgage insurance premiums for the life of the reverse mortgage..

The deduction of mortgage insurance premiums ended in tax year 2020.

[jklcpa]

On 8/23/2024 at 12:46 PM, Lee B said:

I disagree, most reverse mortgage are used as income replacement which does not qualify as deductible interest,

unless the proceeds were used to improve the property. The amount in box 5 may be reverse mortgage origination fees?

I agree. The rule that proceeds must be used to "buy, build, or improve" would apply. It is possible that some may be deductible if the owner used some of the funds for renovations, for example to make the property more livable during aging, handicap accessible, or for upgrades/modernization. Also, the lender may have required some improvements be made in order to qualify for the loan too.

[Abby Normal]

And also if the reverse mortgage paid off some of the original mortgage.