Search Our Online Directory

  • Home
  • Mortgages
  • Home Loans
  • Buying a Home
  • Credit
  • Equity
  • Foreclosure
  • Refinance
Resources
  • Apply for Home Loan
  • Home Loan Calculator
  • Mortgage Companies
  • VA Home Loan
  • Interest Rates
  • Debt Consolidation
Popular Searches
  • Bad Credit
  • Home Maintenance
  • 30 Year Mortgage Rate

About the Tax Consequences of a Reverse Mortgage

by HomeLoan.com
A reverse mortgage is one way that senior citizens can get income for themselves, especially after they retire. Senior citizens can use their home value to live off of until they decide to move out or sell the home. But before a reverse mortgage is taken, people should understand more about the tax ramifications.

Reverse Mortgage

A reverse mortgage is a loan based on the equity of a home. Borrowers are able to borrow enough money against the equity of the home if the owners meet qualifications which include age (62 or older), ownership status and type of home owned. The Housing and Urban Development department (HUD) has developed guidelines and federal restrictions concerning the reverse mortgage. See the Resources section below for a link.

Tax-free

Income from a reverse mortgage is not the same as income from work, according to the Internal Revenue Service (IRS). The IRS sees it as an advance on a loan based off of home equity, which is not taxable. Therefore, any monies gained from a reverse loan are considered tax-free.

Interest

People with a reverse mortgage still have to pay interest on the home loan. It doesn't have to be paid until the end of the term which is usually when the home is sold or the owner passes away. But if borrowers decide to pay on the interest early, it is still tax-deductible within the year that the taxes were paid.

Social Security

Some Social Security benefits are subject to federal taxation, dependent upon how much income the beneficiary is generating. One advantage of a reverse mortgage is that the income generated from it does not count towards the borrower's income.

Property Taxes

As long as the owner is occupying the residence, he is still responsible for property taxes. If you fail to pay them, a tax lien could be held against your home. The lender has the option to not execute your reverse mortgage payments until the lien is paid off. For those who took the reverse mortgage payment as a lump sum, lenders can ask for it back and deduct any taxes owed from it.

Resources

  • Tax FAQ for reverse mortgage


Featured Articles
  • Wells Fargo Halts Reverse Mortgages​Wells Fargo & Co, the fourth-largest U.S. bank, recently announced that it will no longer originate reverse mortgages because of unpredictable ...
  • How to Use My Home As Collateral for a LoanAny collateralized loan is called a secured loan. When the collateral used to secure a loan is a piece ...
  • Great Rates for Those Who Qualify​As interest rates continue to drop and home prices around the nation plummet, one might be tempted to think now is the time to buy a home, but the ...
  • Method to Pay Off a Balloon Home Equity Loan EarlyBalloon mortgages are designed to give borrowers a period of time--often as much as 10 or 15 ...
  • Countrywide Begins to Pay Settlements​A deal struck between the Federal Trade Commission and Countrywide Home Loans in June of last year will finally go into effect later this summer ...
Contact Us

Images courtesy of Images_of_Money, trenttsd, RambergMediaImages

Sitemap | Privacy Policy

Copyright © 2018 HomeLoan.com