What Are the Tax Consequences of a Reverse Mortgage?
The proceeds of a reverse mortgage are generally tax-free and generally do not affect Social Security or Medicare benefits (although they may affect eligibility for public assistance programs). Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.
When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. Note that a "nonrecourse" clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.
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