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Reverse Mortgage Insurance Premium

Client signed a reverse mortgage that paid off the original acquisition loan. They took a lump sum (not annuity).

At closing $3,100 was charged as MIP and added to the loan balance. There is also a charge for MIP each month which has been added to the loan balance. The paperwork states this is paid to HUD and charged to the borrower.

The client states even if the reverse mortgage balance goes above the FMV of the home, the amount due on the loan can never be greater than the home's FMV.

A 1098 was issued with box 4 filled out for the $3,100 charged at closing plus the amounts rolled into the loan each month (total $4,000). However, box 1 of the 1098 is blank even though $3,900 of interest shows to have accrued and been added to the mortgage balance.

The IRS has makes it clear the interest is not deductible this year.....but what about the MIP......do I amortize the $3,100 over 84 months and take the rest of the MIP charged each year as a Schedule A deduction?

Reply to
mammondee
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They took a lump sum (not annuity).

also a charge for MIP each month which has been added to the loan balance. The paperwork states this is paid to HUD and charged to the borrower.

the home, the amount due on the loan can never be greater than the home's FMV.

the amounts rolled into the loan each month (total $4,000).  However, box 1 of the 1098 is blank even though $3,900 of interest shows to have accrued and been added to the mortgage balance.

what about the MIP......do I amortize the $3,100 over 84 months and take the rest of the MIP charged each year as a Schedule A deduction?

Neither interest nor mortgage insurance are deductible unless and until you make a payment.

Reply to
Bill Brown

loan. They took a lump sum (not annuity).

is also a charge for MIP each month which has been added to the loan balance. The paperwork states this is paid to HUD and charged to the borrower.

the home, the amount due on the loan can never be greater than the home's FMV.

plus the amounts rolled into the loan each month (total $4,000).  However, box 1 of the 1098 is blank even though $3,900 of interest shows to have accrued and been added to the mortgage balance.

what about the MIP......do I amortize the $3,100 over 84 months and take the rest of the MIP charged each year as a Schedule A deduction?

I agree with Bill if the amount of the reverse mortgage was no more than the outstanding acquisition debt. The OP said the original acquisition debt was paid off by the reverse mortgage that was a lump sum. The OP did not state whether the reverse mortgage was larger than the outstanding debt. If there was cash out, then there is the possibility of a tax deduction depending upon how the cash out was used.

E,g.: Outstanding debt is $100,000. Reverse mortgage is for $125,000 and the excess is used to make capital improvements to the home. To the extent that 20% of the new loan was used for improvements, 20% of the MIP could be deducted. Also note that the MIP deduction is phased out when AGI exceeds certain limits.

Reply to
Alan

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