Reverse Mortgage Stmt

[S T]

Here is a first for me - I have a client that purchased a home on a Reverse Mortgage and Box 4 is showing "Mortgage Insurance Premiums" of $ 9K+

Thinking these are not deductible or can not be amortized over the 84 months, as they most likely are being added to the loan amount, along with all of the other associated fees and costs.

Any thoughts!

Thanks

Sandy

[Koss]

Reverse Mortgage

Are you sure your client purchased the home with a reverse mortgage?

That's not how a reverse mortgage normally works. And this matters.

A reverse mortgage is usually a loan extended to a borrower who already owns their home free and clear. It is meant for the elderly. It is a mechanism that allows them to borrow money, using their house as collateral, and basically never have to pay it back. When the borrower dies, the house is sold, and the proceeds are used to pay off the loan balance.

So if your client has a real reverse mortgage, I don't think she purchased a house. She already owned a house, with no debt, and she chose to apply for a mortgage.

The distinction is important, because...

Mortgage insurance premiums are only deductible when the mortgage loan is acquisition debt. They are not deductible when the loan is home equity debt.

A genuine reverse mortgage, by definition, is home equity debt.

BMK

[S T]

T/p sold primary residence - one set of HUD 1 (sale) and then purchased a "new residence" another Hud-1 (purchase)

The papers clearly state a "Reverse Mortgage " and it is a purchase of a New Residence" and matches to the HUD 1 statement for the purchase , along with all of the addded interest Accrued, MIP and I can see from the HUD 1 (sale) transfer of $ to the HUD-1 (purchase)

T/p happens to be a Real Estate Broker and had asked me if I had ever seen a Purchase with a Reverse Mortgage - They simply did not have enough funds from the sale to complete the purchase and rather than a conventional loan with regular monthly payments - did a Reverse Mortrgage - so no monthly payments.

Crazy!

Thanks

Sandy

[DonB]

There's a way to move up in the world-- Looks like TP has acquisition debt and qualified MIP and could be considered paid with the down payment (proceeds from sale of 1st home). I would amortize.

[mactoolsix]

T/p sold primary residence - one set of HUD 1 (sale) and then purchased a "new residence" another Hud-1 (purchase)

The papers clearly state a "Reverse Mortgage " and it is a purchase of a New Residence" and matches to the HUD 1 statement for the purchase , along with all of the addded interest Accrued, MIP and I can see from the HUD 1 (sale) transfer of $ to the HUD-1 (purchase)

T/p happens to be a Real Estate Broker and had asked me if I had ever seen a Purchase with a Reverse Mortgage - They simply did not have enough funds from the sale to complete the purchase and rather than a conventional loan with regular monthly payments - did a Reverse Mortrgage - so no monthly payments.

Crazy!

Thanks

Sandy

Sandy - we have a client did the same thing last year. They moved to NV, wanted to buy a house and had about 1/2 the amount of the purchase price. They are retired and do not want a house payment. The balance of the loan was put up by the mortgage company on a reverse mortgage (plus all kinds of costs). Nothing was deductible on the purchase, everything added to the basis. They just came in for this years taxes - only thing deductible is the property taxes paid.

Mike

[S T]

Thanks for the thoughts,

I am thinking the MIP is not deductible even if amortized, and if I do amortize it is only for 4 months in 2013 --- then moving into year 2014, if the t/p does not have any mortgage interest, only property tax, I doubt that I will be able to file a Schedule A - they will be Std deduction.

Just something I have not encountered, but then this t/p is creative beyond belief

Sandy