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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Re: Reverse mortgages Date: 3/27/2012 7:38 PM
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I've never had to deal with one, so I'm just thinking out loud here.

It seems to me that most reverse mortgages allow the homeowner to continue occupying their home until some trigger event such as moving to a nursing home or assisted living, or dying.

So if the client was continuing to live in the house under the typical reverse mortgage terms, there would be nothing to report on her final return, as it would be her death that triggers the end of the reverse mortgage. Any impact would then end up on the estate's income tax return rather than a final 1040.

The alternative is that there was some triggering event before the client passed away. Then I think you'd use the normal home sale routine. If the house went directly to the mortgage holder, I'd guess the sale price would be the amount of the reverse mortgage. Somewhat like a foreclosure.

The interest isn't being paid, so I don't think there's mortgage interest deduction. Unless adding the interest to the loan balance counts as paying the interest. But that typically doesn't work for a negative amortization loan, so I don't see how it would work for a reverse mortgage.

--Peter
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