Question: Are the amounts a taxpayer receives from a “reverse mortgage” taxable? Deductible?
Answer: NO to both. Interest on a reverse mortgage loan added monthly to the outstanding loan balance as it accrues is neither taxable in a cash method lender’s gross income nor deductible by a cash method borrower at the time it is added.
- The primary purpose of a reverse mortgage loan is to enable elderly persons with limited incomes to remain in their homes.
- Repayment of the loan is due when the principal amount has been fully paid to the borrower (they receive monthly allotments),
- The residence that secures the loan is sold,
- The borrower dies, or the borrower ceases to use the home as the borrower’s principal residence