Reverse Mortgage Loan Blog

Question from Arlene:

I have a reverse mortgage. Can I use the interest on this mortgage as a deduction on my Federal and Oregon tax returns?

Answer:

Arlene, for federal income tax purposes, the interest on a reverse mortgage is accrued and is deducted when the loan becomes due not on your current year return. IRS Publication 17 says the following about reverse mortgages:

Reverse mortgages. A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936.

I am sorry, but I am not able to answer the state portion of your question. You will need to contact the Oregon Department of Revenue at www.oregon.gov/DOR or by phone at 800-356-4222 or 503-378-4988.

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