HOUSINGNEWS REPORT
REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?
HELOC ORIGINATIONS
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strengthened with the passage of tax reform in 2017.
There will be less to write off as an itemized deduction for many taxpayers.
loan advances to you, not income you earned. Thus, the payments you receive are not taxable. Moreover, they usually don’t affect your Social Security or Medicare benefits.” “On the downside,” explains NOLO, “all the interest that accrues on your reverse mortgage is not deductible by you until you actually pay it, which is usually when you pay off the loan in full. Moreover, your mortgage interest deduction is usually subject to the same limits as other home equity loans — that is, you can deduct the interest on no more than a loan of $100,000.” For many senior homeowners the downside no longer exists. Since relatively few borrowers will be deducting mortgage interest under tax reform, most will have no HELOC or forward mortgage deduction to lose. Will Reverse Mortgages Offset HELOC Worries? In the same way that changes in the tax code could well lead to increased
Under the new rules, for example, those married and filing jointly will be able to take a $24,000 standard deduction for 2018, up from $12,700 in 2017. While the increased standard deduction has gotten much attention, it effectively eliminates the mortgage interest write-off for most taxpayers. “Beginning in 2018,” says the IRS, “taxpayers may only deduct interest on $750,000 of qualified residence loans.” Under the old rules interest on up to $1 million in qualified mortgage debt was deductible. While mortgage deductions remain on the books, in practice millions of homeowners won’t bother with them. The reason is that itemized deductions are likely to be smaller than the newly enlarged standard deduction, and you can only write-off one or the other.
“Your total deduction for state and local income, sales and property taxes,” says the IRS, “is limited to a combined, total deduction of $10,000 ($5,000 if Married Filing Separate). Any state and local taxes you paid above this amount cannot be deducted.” The result, says the Tax Policy Center, is that only 4 percent of all taxpayers are expected to itemize for 2018, down from 21 percent under the old rules. As the real price of forward mortgages goes up for many borrowers in terms of lost tax benefits, reverse mortgages are increasingly attractive for seniors looking to cut monthly costs. Not only does a reverse mortgage allow borrowers to end monthly costs for principal and interest, the money received with a HECM is not taxable. The reason, says NOLO.com, is that “reverse mortgages are considered
It’s not just size which makes the new standard deduction so attractive.
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DEC 2018 | ATTOM DATA SOLUTIONS
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