Tax implications of a reverse mortgage the proceeds received from a reverse mortgage are free from federal and state income tax and can be used for any purpose the interest that eventually will be paid when the reverse mortgage is retired is tax deductible but only at the point when the reverse mortgage is paid off. Using a reverse mortgage to pay for medical costs and or insurance can be an important part of asset protection planning for the benefit of you and your heirs uses of reverse mortgages fund life insurance you might consider using the proceeds from a reverse mortgage to fund a life insurance product. The tax implications of reverse mortgages its tax season for both new and prospective reverse mortgage borrowers it brings to mind questions about how the money from a reverse mortgage is best handled from a tax perspective in either case there are a few things you should know from a tax perspective. Should you use a reverse mortgage in retirement monthly mortgage payments will result in hundreds of thousands of dollars in cash flow for the next 15 20 30 years on a 400000 home . One positive aspect of a reverse mortgage is that the homeowner pays no taxes on any money received this is appropriate because there is no taxable gain the reverse mortgage is a loan because reverse mortgage payments are not income they dont affect income related aspects of social security or medicare benefits
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