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Tax Treatment of Reverse Mortgages
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Article Highlights:Reverse MortgagesReverse Mortgage TermsWho Deducts the Interest?When Is the Interest Deductible?Home Equity Loan and Reverse Mortgage Issues Compared With inflation on the rise and medical care costs escalating, what options do seniors have for keeping up, especially if they have a mortgage on their home and their retirement income is only barely covering their mortgage payments and other necessities, with little left over for some enjoyment in their golden years, without relying on help from family? One choice may be a reverse mortgage, which would allow the homeowner(s) to borrow against the equity they have built up in their home over the years. The loan is not due until the homeowner passes away or moves out of the home. If the homeowner dies, then the homeowner’s heirs can pay off the debt by selling the house, and any remaining equity goes to them. If the loan balance at that time is equal to or more than the home’s value, then the repayment amount is limited to the home’s worth. Generally, the reverse mortgage won’t be due as long as at least one homeowner lives in the home as their primary home. In order to be eligible for this loan, the borrower must be at least 62 years of age and have equity in the home. The reverse mortgage must be a first trust deed. Thus, any existing loans would have to be paid off with separate funds or with the proceeds from the reverse mortgage. The amount that can be borrowed is based on the borrower’s age, current interest rates, appraised value of the home, and government-imposed lending limits. The older the borrower, the greater the amount that can be borrowed and the lower the interest rate. The borrower can take the loan as a lump sum, as a line of credit, or in equal monthly payments for a fixed number of years or for as long as the borrower lives in the home. In addition, the money generally can be used for any purpose, without restrictions. As is the case with other loans, the reverse mortgage loan is not taxable, regardless of the payment method. The borrower retains the title to the home and must continue to pay property taxes and homeowner insurance as well as maintain the property. Thus, property taxes – within the $10,000 annual SALT limitation – that the borrower pays will continue to be tax deductible if the borrower itemizes deductions.One question that always comes up when discussing reverse mortgages is whether the interest will be deductible. Consider the following factors when determining whether reverse mortgage interest is deductible, when it is deductible, and by whom:Interest (regardless of type) is not deductible until paid. A reverse mortgage loan does not need to be repaid as long as the borrower lives in the home. Therefore, the interest on a reverse mortgage is not deductible by anyone until the loan is paid off.Generally, reverse mortgages are classified as equity loans, and under the 2017 tax-reform rules of the Tax Cuts and Jobs Act (TCJA), equity debt interest is not deductible during the years 2018 through 2025. (In years before 2018, the deductible equity debt interest was limited to the interest accrued on the first $100,000 of debt, and equity debt interest was not deductible by taxpayers subject to the alternative minimum tax.) There are exceptions for when the reverse mortgage is used to pay off an existing acquisition debt loan. If the reverse mortgage was used to refinance an existing home-acquisition loan, then when the reverse mortgage loan is paid off, a prorated portion of the accrued interest will be deductible home-acquisition debt interest.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
