1. Tax-Free Proceeds: One of the most attractive aspects of a reverse mortgage is that the proceeds you receive are typically tax-free. This means you won't owe federal income tax on the money you receive from your lender. These funds are considered a loan advance rather than income, so they do not impact your tax liability.
2. Property Tax and Insurance: While the reverse mortgage itself doesn't trigger income tax, you must stay current on property taxes and homeowner's insurance. Failing to do so can lead to foreclosure. These expenses are not tax-deductible, but they are essential to maintain your home and keep your reverse mortgage in good standing.
3. Interest Deductions: Although you don't pay interest on a reverse mortgage until it's repaid, the interest on your loan can be deducted when you or your heirs sell the home and repay the loan. Keep detailed records of the interest paid, as this deduction can help offset some of the costs associated with the loan.
4. No Impact on Social Security or Medicare: A reverse mortgage does not affect your eligibility for Social Security or Medicare benefits. These government programs are not means-tested, so the loan proceeds will not impact your access to these essential services.
5. Consult a Tax Professional: While reverse mortgages are generally tax-friendly, it's crucial to consult a tax professional to ensure you understand your specific tax situation fully. Tax laws can change, and your individual circumstances may have unique tax implications.