So, do you pay income tax on a reverse mortgage? Are reverse mortgage funds taxed?
A reverse mortgage is a loan, it is not classified as income since you didn’t earn the money. The funds are borrowed or leveraged. If you hear someone telling you that the reverse mortgage is tax free, that is not true. Because you still have to pay property taxes when you have a reverse mortgage just like any other mortgage. For this reason, it’s not accurate to make the statement that a reverse mortgage is tax free.
If you have a HECM reverse mortgage line of credit or a non-HECM reverse mortgage line of credit (there are a few different types), any funds you draw from the line of credit do not have to be reported on your federal or state income tax return. If you are on a state subsidized welfare type of program that tracks your bank balances on a monthly basis, there may be maximum monthly balance thresholds you may not exceed, or your subsidy may be suspended for having too much money in your account. In that case if you are drawing funds from a HECM reverse mortgage line of credit and having them deposited into a monitored bank account, and you exceed the maximum balance, that would create a problem for that program, however the reverse mortgage funds are still not looked at as taxable income.
To learn the difference between a HECM reverse mortgage line of credit and non-HECM reverse mortgage line of credit, I’ve created a video to explain the differences, the link is below. https://youtu.be/_EQz7FuuOGc
I created a separate video explaining all types of reverse mortgages https://youtu.be/XuA-GQE4MFs
I originate the California reverse mortgage, was born and currently reside here and am happy to help with any questions you may have. Feel free to call, email, text or click this link, https://californiareversemortgage.biz/contact-me-today/ to fill out a brief California reverse mortgage scenario and I will reach out and contact you.
Kind regards,
Kevin Walton
C2 Reverse, 805-276-1942