Reverse Mortgage

[peggysioux]

Taxpayer received a 1099-R with gross distribution and taxable amount being the same at $8000. Taxpayer is advising me this 1099-R is from a reverse mortgage and should not be taxable. The taxpayer is contacting the company tomorrow to research. But, I thought I would check with other tax preparers to see if it is normal to receive 1099-R's for reverse mortgages. In my research, I found reverse mortgages should not be taxable, so surprised that taxpayer would receive a 1099-R. Any ideas???

[jainen]

Strange bird

>>this 1099-R is from a reverse mortgage<<

Strange bird. I daresay any bank could tell the difference between a retirement fund, which is an asset, and a mortgage, which is a liability. My first guess is that the taxpayer doesn't understand how this payout is structured. Perhaps the home was securitized as an annuity in some way.

[George Boutwell]

Taxpayer received a 1099-R with gross distribution and taxable amount being the same at $8000. Taxpayer is advising me this 1099-R is from a reverse mortgage and should not be taxable. The taxpayer is contacting the company tomorrow to research. But, I thought I would check with other tax preparers to see if it is normal to receive 1099-R's for reverse mortgages. In my research, I found reverse mortgages should not be taxable, so surprised that taxpayer would receive a 1099-R. Any ideas???

My bet is that some annuity salesperson got to her and talked her into taking out a home equity loan, then investing it in some product that pays her and pays the mortgage also.

[S T]

Jainen has a point

There are so many strange transactions out there right now, believe me on the mortgage issue, just when I think I have seen it all, something else "pops" up.

So maybe, an annuity broker who can also do reverse mortgages, did this. Wrote the loan for the reverse mortgage, then those funds were placed in an annuity, then the annuity distributed an income to the taxpayer. I have heard of this!

If that is the case, who won on this scenario, the agent of course!

Sandy

[peggysioux]

Reverse Mortgage

I hope that is not the case; the taxpayer is 82 years old and is not at all happy about receiving the 1099-R. He and his wife said that when they set up the reverse mortgage, they were told that it would be non-taxable.

[S T]

True

It is true the reverse mortgage proceeds would not be taxable, based on what I have read, however, if those proceeds were placed in a tax deferred annuity and the proceeds withdrawn from that annuity, they could be taxable.

The taxpayer, might have received a bonus interest on the annuity for the deposit, and then they other regular earnings. So when the proceeds are distributed, there could be a taxable component.

Look to see on the 1099R who is the issuer, that might provide you a clue.

Sandy

[peggysioux]

Reverse Mortgage

No, turns out client is just getting forgetful!! They started receiving distributions from an annuity the same time they did the reverse mortgage and just forgot all about the annuity when it came tax time. Thanks for all your input!! Hope everyone enjoys their down time!!

[S T]

down Time

What down time?? Still processing and doing payroll taxes, sales tax reports and monthly accounting and payroll processing.

Seems like it just continues it cycle throughout the year.

However, I am so glad to have the pressure off for the 4/17/07 deadline date.

Sandy