August 19, 2006 6:20 AM
Reverse Mortgage Is Tax-Free, But Sometimes Not Tax Deductible
The tax impact of a reverse mortgage is tricky. The loan itself is tax-free, means you don't pay tax for the amount you borrow. Plus, since reverse mortgage is a form of home equity loans, you are also entitled to deduct some interest too. However, if you borrow more than $100,000, not all your interest expense is deductible.
From help4srs.org:
Income Taxes
The money you receive from a reverse mortgage is considered a non-taxable loan. You can deduct the interest on a reverse mortgage when you actually pay it, that is, when the loan is paid off. Since reverse mortgages are home equity loans, you can deduct interest only for loan amounts up to $100,000. Thus, if the loan balance is more than $100,000 when the mortgage is paid off, not all of interest will be deductible.
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