Related: 14 Annuity Tax Facts to Know
A reverse mortgage is a loan where the lender pays a homeowner (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while he or she continues to live in the home. Limited to borrowers 62 or older, the loans are intended to provide an additional source of income for retirees.
With a reverse mortgage, the homeowner retains title to the home. Depending on the plan, a reverse mortgage becomes due with interest when the homeowner moves, sells the home, reaches the end of a pre-selected loan period, or dies.
Because reverse mortgages are considered loan advances and not income, the amount received is not taxable. This is just one tax implication to consider when contemplating a reverse mortgage for your client.
In the gallery above are 12 important tax and financial planning questions advisors should be aware of regarding reverse mortgages, according to ALM’s Tax Facts Online.
(Graphics: Chris Nicholls/ALM)
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