The interest that accrues on the mortgage counts as "acquisition debt," meaning you can still deduct it from your taxes each year; this even applies if you used a forward mortgage to buy your house, then refinanced it into a reverse mortgage later.
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Once again, to the extent the loan proceeds are used to acquire, build, or substantially improve the residence, the (reverse) mortgage debt is treated as acquisition indebtedness (and its interest is deductible as such), while (reverse) mortgage funds used for any other purpose are at best home equity indebtedness.
With a conventional mortgage, the interest accrued is tax-deductible on an annual basis, so when you file your taxes you can write off that interest. With a reverse mortgage, you cannot deduct your accrued interest until the loan matures. Reverse mortgages, according to the IRS, are not counted as income but rather as a loan advance.
The fact is home mortgage interest is still deductible but interest paid on home equity loans (HELOCs and some 2nd mortgages) are no longer deductible. Those with existing mortgages can still deduct the interest charged on up to $1 million financed. New home buyers are now limited to deducting interest on mortgages up to $750,000.
Unlike a conventional mortgage, the accrued interest associated with a reverse mortgage is not tax-deductible on an annual basis. Thus, while you can write off all (in most cases) of the interest on your conventional mortgage when you file your taxes every April, you can’t include interest on your reverse mortgage. Instead, reverse mortgage interest can only be deducted when the loan matures. According to the IRS, "Because reverse mortgages are considered loan advances and not income.
Yes, for reverse mortgages, you can deduct amounts you paid for qualified mortgage insurance. The insurance must be in connection with home acquisition debt- the deduction is not available for the portion relating to other types of indebtedness, such as home equity indebtedness.
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If a mortgage does not meet these criteria, your interest deduction may be limited. To figure out how much interest you can deduct and for more details on the rules summarized above, see irs publication 936: Home Mortgage Interest Deduction.