Reverse Mortages, Part III - Tax Issues and

The major issues to consider with regard to reverse mortgages are taxes and government benefits.  All need to be considered when planning to apply for or accept a reverse mortgage.  To fully understand all aspects of reverse mortgages you need to speak with a tax professional, your accountant, or your financial advisor.  If you trust your banker, and trust him that he will tell you what’s best for you, then ask him about your bank’s reverse mortgage offers.

In the realm of taxes, there are two that are important areas of taxes to inquire about: tax deductions and property taxes.  “No income tax?” That’s right, no income tax.  Since your HECM is considered a loan, it is NOT eligible for income tax.  The interest IS tax-deductible, however, the only time that interest is paid, is when the loan is repaid.  Since the loan is repaid when the owner sells the house or is no longer living in the home, you will have a large amount of interest.  The interest is deductible only in the year that the interest is paid.  That means there will be a large deductible that you (or your heirs) will apply for that year.  The other is property taxes.  As I’ve said before, there is NOTHING that you can do to avoid property taxes.  You will have to pay them until you die or no longer own that property.  The old adage is right, “The only thing that is certain is death and taxes.”  Unfortunately, they are even trying to tax our death…so sad.

Even though HECM money is not considered income, if too much is withdrawn and not used soon enough, certain need-based government programs could be at risk.  The best thing to do is contact your Medicare/disability/social security counselor prior to withdrawing money, or even before finalizing the loan.

Estate planning concerns in Part 4.

Related posts:

1. Reverse Mortgages, Part II: The Numbers
2. Reverse Mortgages, Part I - What is a Reverse Mortgage?
3. Reverse Mortgages, Part IV - Estate Planning