What will I be taxed on for my reverse mortgage?
This is a question frequently asked. The answer is that the proceeds from a reverse mortgage is a loan and is not an income. Therefore, no income taxes are due.
A reverse mortgage is a home equity loan
The money you receive from a reverse mortgage becomes a balance on your mortgage loan and therefore, is not earned income.
However, if you should choose to place these funds in an interest earning instrument, you may have to pay taxes on the interest you have earned. You should discuss this option with your tax accountant.
What can I deduct?
This is another frequently asked question. Since a reverse mortgage has no payment schedule and you do not make payments, you do not pay any interest, until the loan comes due. However, when you do pay your reverse mortgage off, you should consult with a tax professional to determine if your total interest paid is deductible for you on the accumulated interest.
The interest paid on a reverse mortgage
A reverse mortgage is like any mortgage loan. Your interest accumulates only on the amount you have borrowed. When you move, sell or die the loan is due to be paid in full. You or your heirs will pay back the amount you borrowed and the interest that has accrued to the date of pay off.
Still no income tax
None of the money borrowed is considered as an income. It is a debt. So, there will not be any income taxes to report.
Tax deduction
At the time of pay off, the interest may be deductible that has been accruing over the time that you had the loan. But, you or your heirs, would want the correct tax advise to determine this option.
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