ARLO teaching interest deductions

Tax Benefits of Reverse Mortgages: What’s Deductible?

Similar to a conventional mortgage, some costs associated with a reverse mortgage are tax-deductible, as are interest payments a borrower chooses to make.  Joe Diaz, owner of American Essential Services, a tax preparation company in Kissimmee, Florida, explains that borrowers can claim origination fees, broker fees, and even “discount points” if a broker offers a lower interest rate in exchange for an upfront fee. “The discount point is tax-deductible because it’s a prepaid interest cost,” Diaz notes.

Here’s how it works: A broker provides a loan at the bank’s “par” rate (no fee to the broker). If a borrower requests a lower rate, the broker may charge “points” upfront to offset the reduction. These points qualify as a tax deduction.

Intangible Taxes May Be Deductible

In states like Florida, borrowers can also deduct the “intangible fee” associated with reverse mortgages. Diaz advises, “Save your final settlement statement—it lists all fees.  The IRS doesn’t always get accurate reports, so you’ll need proof at tax time.” These deductions can be claimed on Schedule A of Form 1040.

Deducting Interest Payments

While reverse mortgages don’t require monthly payments, making optional interest payments can help manage your loan balance—and unlock tax benefits. Per the IRS, “Interest accrued on a reverse mortgage isn’t deductible until it’s paid, typically when the loan is fully repaid.” If you pay the interest, it’s fair game for a deduction.

Diaz adds, “If no payments are made, the IRS won’t receive a report of paid interest from the lender. You must actively pay to claim it.” Alternatively, heirs who settle the loan after the borrower’s death can deduct the interest they pay, up to a $100,000 limit, as noted by Michael Darrett, CPA at Liberty Tax Services in Chicago, IL.  The IRS classifies reverse mortgage debt as home equity debt, capping deductions accordingly.

How Payments Are Applied

When you make payments on a reverse mortgage, they’re applied in this order:

  1. Accrued mortgage insurance premiums
  2. Monthly servicing fees
  3. Accrued interest
  4. Principal balance

Borrowers receive a Form 1098 statement—detailing premiums and interest paid—when the loan is partially or fully repaid. These statements, mailed each January, are essential for tax filing.

Tax-Deductible Reverse Mortgage Costs

CostTax-Deductible?Conditions
Origination FeesYesClaimed in the year paid, listed on settlement statement
Broker FeesYesClaimed in the year paid, listed on settlement statement
Discount PointsYesDeductible if paid upfront for a lower interest rate
Intangible FeesYes (in some states)E.g., Florida; verify with your state and save settlement statement
Interest PaymentsYesDeductible only when paid, not accrued; capped at $100,000 for home equity debt
Mortgage Insurance PremiumsNo (unless paid)Deductible only if paid, as part of repayment

Interest Deduction FAQs

Q.

How does a reverse mortgage affect your taxes?

A reverse mortgage is not income; it is borrowed money, which is like any other loan. Borrowers need to consult their own CPA/tax professional for their circumstances.
Q.

Do you get a 1098 on reverse mortgage interest?

You do get a 1098, but only when the interest is paid. For more information on tax matters, borrowers should consult their own CPA/tax professional for their circumstances.
Q.

Do Reverse Mortgages count as income?

The funds you receive from your reverse mortgage are borrowed funds; they are not earned income.
Q.

Is any reverse mortgage costs tax deductible?

The reverse mortgage is a home loan, like any other. To determine the exact deductibility of any specific expenses, borrowers should consult their own CPA/tax professional for their circumstances.
Q.

Who pays property taxes on a reverse mortgage?

You always own your home and are responsible for your taxes, insurance, and property maintenance.

The experts at All Reverse Mortgage are here to answer your questions, but we cannot provide specific tax advice.  Always contact your trusted tax professional to get advice on your taxes.