Interest on a reverse mortgage loan

[Roland Slugg]

Assumptions:

• Taxpayer takes out a RML.
• Taxpayer dies five years later
• The accumulated interest is $50,000
• The loan, interest and up-front costs are then paid either by, (A) the decedent's estate, or (B) the decedent's beneficiary(ies).

Question: What taxpayer(s), if any, can deduct the interest under situation A? Situation B?

The issue is the deductibility of the interest on an income tax return, not the estate tax return (F-706) if the decedent leaves a taxable estate.

[OldJack]

An excellent question. I have not seen a written answer, but it would appear to me your last item answers the question. Which ever ("A" or "B") actually pays the interest then they are the one that gets the deduction. If the estate pays the debt it should be allowed the deduction, if the estate distributes the asset with the liability the beneficiary should pay and receive the deduction.

[jainen]

It would be

>>I have not seen a written answer<<

It would be considered a deduction in respect of the decedent, since the liability transferred with the property.