Mortgage Insurance on Reverse Mortgage

Client has 1098 for a Reverse Mortgage that shows over $5000 in Mortgage Insurance in Box 4. Is this deductible and if so over what time period? As I understand it, money was taken from the reverse
mortgage to pay off first and second mortgages. This all went down late in 2008.
WDK
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snipped-for-privacy@aol.com wrote:

If the debt re-financed was acquisition debt, the insurance on that amount could be deducted just like interest, since the insurance contract was issued in 2008. However if any of the $5K was pre-paid insurance for a future tax year, it should be allocated, see Pub 936.
-Mark Bole
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Mark,
I think the insurance amount entered in Box 4 on the W-2 is deductible, otherwise it wouldn't be in Box 4. I read something about deducting it over 84 months. I asked client to bring in the reverse mortgage papers so I can see what is going on.
Now if someone could get what's reported in Box 14 on a W-2 sorted out or identified I may have a chance at maintaining my sanity. It's just great when some of the items are deductible (medical insurance paid by employee) and others aren't (like state disability insurance taxes).
Cheers,
WDK
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Is that a typo?

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ArtKamlet at a o l dot c o m Columbus OH K2PZH

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On Mar 22, 8:04pm, snipped-for-privacy@panix.com (Arthur Kamlet) wrote:

Not exactly, I called IRS about a week ago and I believe they said it was not deductible and certainly not all deductible for tax year 2008.
I just came across this in the IRC.
Section 163(h)(3)(E)
E) Mortgage insurance premiums treated as interest (i) In general Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.
snip
Section 163(h)(4)(E-F)
(E) Qualified mortgage insurance The term qualified mortgage insurance means (i) mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and (ii) private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in effect on the date of the enactment of this subparagraph). (F) Special rules for prepaid qualified mortgage insurance Any amount paid by the taxpayer for qualified mortgage insurance that is properly allocable to any mortgage the payment of which extends to periods that are after the close of the taxable year in which such amount is paid shall be chargeable to capital account and shall be treated as paid in such periods to which so allocated. No deduction shall be allowed for the unamortized balance of such account if such mortgage is satisfied before the end of its term. The preceding sentences shall not apply to amounts paid for qualified mortgage insurance provided by the Veterans Administration or the Rural Housing Administration.
The last sentence above is not reflected in IRS Pub 936 as it would apply to mortgage insurance on a reverse mortgage that client has. Therefore my conclusion, at least for today, is the entire $5000+ is deductible for 2008.

Cheers,
WDK
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The message says "box 4 on the W-2" and I asked if that was a typo, and got a "not exactly."
Making me one confused reader.

It seems to me the premium was neither paid nor accrued but was capitalized into the mortgage loan amount, adding to principal.

Prepaid seems to me to indicate it was paid, not capitalized.

Again, there's that nasty word "paid"

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ArtKamlet at a o l dot c o m Columbus OH K2PZH

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snipped-for-privacy@aol.com wrote:

California SDI (state disability insurance) is deductible as a mandatory state income tax on federal Schedule A, even when it is reported in Box 14 of the W-2 (common). Voluntary plans (e.g. VPDI) are not.
Excess withholding on SDI/VPDI from two or more employers is also refundable at the state level, just like OASDI on federal.
-Mark Bole
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State disability insurance taxes in NY, NJ, RI, and CA are deductible as income tax (Pub. 17, p. 147). I guess that makes your problem worse.
Bob Sandler
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Bob:
Yup!, I guess so. The point that I was trying to make is that some of the items listed in Box 14 can be used to reduce taxable income and some can't and the labeling of the items listed in Box 14 can be beyond cryptic.
Thanks for the info.
Cheers,
WDK
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It's probably not normal mortgage insurance like you would have on a standard mortgage. The following is from an article about reverse mortgages today in the newspaper that some people in this group love to hate.
"There is also an upfront insurance premium equal to 2 percent of the home's appraised value or lending limit (up to $625,500), which protects borrowers if anything happens to the lender and guarantees that the total debt owed will never exceed the home's value."
Bob Sandler
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"There is also an upfront insurance premium equal to 2 percent of the home's appraised value or lending limit (up to $625,500), which protects borrowers if anything happens to the lender and guarantees that the total debt owed will never exceed the home's value."
What utter doubletalk. *Who* insures *whom* against *what*?
As long as the borrower is paying for it, nobody seems to care one whit about the reality of fees charged during a mortgage financing. In general, what a ripoff, and in specific, what a ripoff! Consumers should rise up and make the reverse mortgage business get honest!!
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snipped-for-privacy@hotmail.com wrote in

IIUC, the Feds (FHA/HUD) provide insurance to the borrower (or the borrower's estate) for a fee against the risk of default by the mortgage servicer in making payments due the borrower, or for the possibility of a short sale by the estate. However, what I have seen is in a down market, the estate will simply "hand the keys over" if the loan is upside-down. It's unlikely the estate will have anything for a deficiency judgement.
scott s. ..
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My admittedly naive understanding was that the lender had "bought" the downside of the real estate market risk. And if there's something (I don't know if this PMI is it or not, I'm that naive] covering him against that loss, it is HE - the mortgage lender - who should pay the premium. To dump that cost directly onto the borrower - right there at the settlement, where everybody can see it [but nobody questions it...!] - should be an insult to intelligent/informed/responsible customers...
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"...and guarantees that the total debt owed will never exceed the home's value." That risk is the lender's risk, and I do not understand why the borrower pays a premium to insure against it. Is this a product sold by AIG? I'm *not* laughing at my own black humor. That's rare. I am 62 years old - eligible for this reverse mortgage product - and I have seen people get ripped off by what I would consider unconscionable fees that weren't even cleverly buried in the settlement.
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snipped-for-privacy@hotmail.com wrote in

Well, the lender is saying that he wants his ass covered in case the housing market collapses again, in the specific case of your house. He wants insurance for that risk, and thinks you should cover the cost. You are not forced to go into this deal. Maybe you should ask to get a yearly adjustment to the payout according to the valuation of your house at yearly (or whatever) intervals, so you can reap the benefits of a rising housing market, when that comes.
To me (I'm a fully qualified expert because I am a biochemist, and have absolutely no bias - please note the sarcasm), it seems that we are near the bottom of the housing valuation, and it does not look like a good time to go into a deal like this right now. I don't know your circumstances, but to me it seems that a home equity loan might be more appropriate now. I am 64, still working, in part because I want to, in part because I have to. My HELOC only costs 2.24% (Chase).
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What kind of insurance is this? That makes a big difference.
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On Mar 23, 7:41�pm, snipped-for-privacy@panix.com (Dick Adams) wrote:

Dick:
Mortgage Insurance on Reverse Mortgage taken out in December (I believe) of 2008. Box 4 on 1098 had an entry of over $5000. Taxpayer's income was not such that the allowable mortgage insurance is phased-out. The first and second mortgages were paid off by the reverse mortgage so taxpayer no longer has a monthly mortgage payment. BTW there was no mortgage interest shown on the 1098, maybe because the mortgage was only taken out in December 2008 or because of the nature of the reverse mortage.
What do 1098's for reverse mortages generally show for interest payments? It is my view that mortgage iinsurance payments in Box 4 are deductible provided there is no AGI based phase-out. If not, IRS needs to come up with a better plan.
What say you?
Cheers,
WDK
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Is not Mortgage Insurance to protect the mortgagee in case of default? If the first and second mortgages have been paid off, who is being insured for what? Read the Reverse Mortgage contract to see what it says about this insurance. If it is really an expense of the homeowner, the homeowner almost certainly have gotten a SUBSTANTIALLY lower premium.
Ask the Reverse Mortgage company for a copy of this policy. This smacks of a hidden add-on to increase the actual interest to be paid. Regardless it should have appeared on the truth-in-lending statement.
In my rarely humble opinion, the goniffs who were peddling sub-prime mortgages are now peddling reverse mortgages.
Dick
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On Mar 24, 2:25�am, snipped-for-privacy@panix.com (Dick Adams) wrote:

Dick:
Here is what Bob Sandler wrote back on March 15 in this thread.

"There is also an upfront insurance premium equal to 2 percent of the home's appraised value or lending limit (up to $625,500), which protects borrowers if anything happens to the lender and guarantees that the total debt owed will never exceed the home's value."
I think what Bob wrote applies to the taxpayer' situation. I have asked the client to bring in the paper work for the reverse mortgage. We will see.
BTW, thanks for staying up late to post a reply.
Cheers,
WDK
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If I understand this correctly, the Reverse Mortgage Lender is assuming the position of a Home Equity Lender and leaving the homeowner on the hook for everything. As such this appears to me to be a fee paid for the benefit of the lender as opposed to traditional mortgage insurance which protects the lender if the mortgagor defaults.
Dick
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