7-Oct-2019 7:33pm
Reverse mortgages. ... Any interest (including original issue discount) accrued on a reverse mortgage is considered home equity debt and isn’t deductible.
Question
Are the proceeds I receive from a reverse mortgage taxable to me?
Answer
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Interest (including original issue discount) accrued on a reverse mortgage isn't deductible until you actually pay it (usually when you pay off the loan in full). Also, a deduction of interest may be limited because a reverse mortgage generally is subject to the limit on home equity debt, which is not deductible unless the proceeds are used to buy, build, or substantially improve the home that secures the loan. For information on deducting mortgage interest and the debt limit that applies, see Publication 936, Home Mortgage Interest Deduction.
7-Oct-2019 8:22pm
7-Oct-2019 8:28pm
8-Oct-2019 7:36am
8-Oct-2019 7:44am
8-Oct-2019 8:59am
8-Oct-2019 10:14am
8-Oct-2019 1:06pm
If the reverse mortgage borrower is on the accrual method (rare yes, but not unheard of), why must he wait until the interest is paid?
In fact, I think the rules are that OID is deducted each year as it accrues, even for a cash method taxpayer.
8-Oct-2019 6:21pm
Right, that’s the general rule. But that rule doesn’t apply if personal use property is involved. But I think you’d say that the asset in question (i.e. the business interest or the business assets) is the asset to be tested, not the residence, thereby rendering the OID deductible by the borrower as it accrues.
. I'm arguing we have a loan for business or investment use, not personal use. So I read 1275(b) carefully, and it tells me that (unless I'm that extremely rare accrual method individual, which I'd bet none of us has ever encountered), for debt(b) Treatment of borrower in the case of certain loans for personal use
, I can only deduct OID when it is paid. My argument in support of the OID deduction is simply that I incurred the reverse mortgage debt for business or investment purposes, even though the debt is secured by my house, a personal use property. IRS, OTOH, might say I incurred the debt to "carry" the house, because I could not afford my business or investment use unless I sold or borrowed against my house. That argument, of course, would fly in the face of the tracing rules that apply to interest.... incurred in connection with the acquisition or carrying of personal use property ...
9-Oct-2019 9:24am
9-Oct-2019 9:02pm
10-Oct-2019 7:44am
jon wrote:Is not the mortgage always attached to a "personal" residence? Unless part business use of residence it IS personal!?? Tracing rules do apply or residence owner has to be accrual basis. I do remember home improvement costs being traced to get part as a deduction when paid.
10-Oct-2019 9:29am
10-Oct-2019 9:40am