Should I be looking for anything with regard to the reverse mortgage when preparing the mother's final tax return?IRS Pub 936 has this to say about reverse mortgages:Reverse mortgages. A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II.So, if the loan was paid off before she died, there may be some deductible interest, subject to the Home Equity Debt limitations. If the loan wasn't paid off before she died, then I would say it's the estate's tax issue to deal with.AJ
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