Some reverse mortgage costs can reduce tax, but most only count when you pay them, and many fees never qualify as a deduction.
A reverse mortgage lets you draw cash from home equity while you keep living in the home. The balance often grows because interest and many charges get added to the loan. That “added to the balance” detail is why tax questions get messy: a fee on paper is not the same thing as money you paid.
This article shows what can land on a tax return, what usually can’t, and what to save so you can file cleanly when the loan ends.
Reverse Mortgage Fees And Tax Treatment At A Glance
Start here. Match your closing papers and monthly statements to the closest row, then read the section for that fee type.
| Expense | How It’s Treated On A Personal Residence | When It Can Count |
|---|---|---|
| Interest that accrues and gets added to the balance | Often treated as home-equity debt interest and may not qualify as a Schedule A deduction | Only when paid, often at payoff |
| Interest you actually paid out of pocket | May qualify as home mortgage interest if the use-of-funds rules are met and limits don’t cut it down | Year you paid it |
| Property taxes you paid yourself | May qualify as an itemized deduction, subject to the SALT cap | Year you paid the tax |
| Origination fee | Loan charge; not mortgage interest | Usually never on Schedule A |
| Appraisal, credit report, inspection, courier | Closing costs; not mortgage interest | Keep for records |
| Title work, recording, settlement services | Closing costs; not mortgage interest | Keep for basis records |
| Mortgage insurance fees | Deductibility shifts by tax year; many filers can’t claim it | Only if allowed for that year and paid |
| Servicing fee added to the loan | Fee for administration; not interest by itself | Usually never on Schedule A |
| Counseling fee | Personal fee; not deductible | Never |
Are Any Reverse Mortgage Expenses Tax Deductible?
Yes, some costs tied to a reverse mortgage can lower taxable income, but the list is short. The IRS treats reverse mortgage advances as loan proceeds, not taxable income. On the deduction side, the IRS notes that reverse-mortgage interest is typically treated as home-equity debt interest, and that type of interest may be non-deductible unless the loan proceeds were used to buy, build, or substantially improve the same home.
There’s another catch: timing. Even if interest can qualify, it doesn’t count until you pay it. Many borrowers do not pay interest monthly, so the first year a deduction could even be on the table is the year the loan is paid off.
So if you’re asking “are any reverse mortgage expenses tax deductible?” the most useful next step is to stick to what you paid this year, not what your lender charged and rolled into the balance.
Reverse Mortgage Expense Deductions By Fee Type
Interest And The Use-Of-Funds Rule
Reverse mortgage interest tends to pile up quietly. When the loan ends, the payoff statement may show a large interest figure. Two tests matter: did you pay it, and was the debt used for a purpose that fits the home mortgage interest rules?
If your draws went to daily bills, travel, gifts, or debt payoffs, that points away from a deduction. If your draws paid for a major home improvement on the same property, keep invoices and proof of payment so you can link the draw to the work.
The IRS lays out the details in Publication 936, including the limits that can reduce a deduction even when interest otherwise qualifies.
Property Taxes Paid By You
Property taxes are often the cleanest place where reverse mortgage households see a tax benefit, because the deduction is tied to a tax bill you paid. Save the bill and your proof of payment. If you pay online, save the receipt PDF and the county payment history for that year.
If a servicer pays taxes from a set-aside funded by loan proceeds, treat that as a warning flag. You may need records showing whose funds actually paid the bill.
Points, Origination, And Closing Costs
Charges at closing can look like “mortgage costs,” but most are not itemized deductions. Origination fees, appraisal fees, title fees, recording fees, and similar charges are usually personal closing costs. They can still matter later because they help document your basis when you sell.
If your paperwork labels a charge as points, read the fee description closely. Points paid with loan proceeds don’t work the same way as points you pay in cash at closing, and service fees don’t turn into deductible interest just because they sit near a points line.
Mortgage Insurance Fees
HECM loans can include an initial mortgage insurance fee and ongoing fees. The rules for deducting mortgage insurance fees have shifted across tax years, and phaseouts and limits can apply. Don’t assume it will show up as a deduction for your return.
When A Deduction Can Happen
Reverse mortgage deductions tend to be “end-loaded.” Most people see potential mortgage interest only when the loan is settled. These are the common payoff paths.
Payoff With Cash
If you paid off the loan with your own funds, the payoff statement is the anchor document. It shows the interest that was actually paid as part of the payoff.
Home Sale Payoff
If the home was sold and the loan was paid off at closing, keep the settlement statement and the lender payoff statement. Those two documents are often the only clear proof of the amount paid to settle the loan.
Refinance Into A New Loan
If you refinanced, the old loan is still paid off as part of the new closing. Save both closing packets. The old payoff amount is what matters for any interest that might qualify in that year.
Itemizing Versus The Standard Deduction
Even a valid mortgage interest or property tax amount does nothing if you don’t itemize. Schedule A is where itemized deductions live, and you only use it when the total is larger than your standard deduction.
Do a quick math check before you chase details: add up property taxes you paid, any mortgage interest you paid this year, and your other itemized lines. If your total stays under your standard deduction, the reverse mortgage pieces won’t change your federal tax.
If you do itemize, use the IRS Schedule A instructions so you put mortgage interest in the right spot, even in years when you did not get a Form 1098.
Records That Keep You Out Of Trouble
Most reverse mortgage paperwork arrives years before the tax payoff moment. A simple folder system keeps you from guessing later.
Closing Folder
- Closing disclosure or settlement statement with itemized fees
- Proof of what you paid in cash at closing
- Any addenda that describe points, interest, or insurance
Yearly Folder
- Property tax bills and payment receipts
- Annual loan statement from the servicer
- Receipts for home improvements funded by loan draws
Payoff Folder
- Payoff statement showing how the payoff was calculated
- Sale or refinance settlement statement
- Any lender year-end letter or Form 1098
Filing Snapshot For The Payoff Year
This table helps you map the payoff paperwork to common tax lines. It’s meant to keep you organized, not to replace the form instructions.
| Situation | Best Proof Document | Where It May Go |
|---|---|---|
| You paid off the reverse mortgage | Payoff statement and any 1098 | Schedule A mortgage interest line, if it qualifies and you itemize |
| You sold the home and paid off at closing | Settlement statement plus payoff statement | Schedule A interest line; sale reporting is separate |
| You refinanced into a new mortgage | Old payoff plus new closing disclosure | Schedule A interest line for the old loan, subject to limits |
| You paid property taxes during the year | County receipt or online payment history | Schedule A tax line, subject to the cap |
| Fees were rolled into the loan at closing | Closing disclosure | Usually not deductible; keep for basis records |
| Loan draws funded a home improvement | Invoices and bank records | Shows interest allocation tied to qualified use |
| An heir settled the loan | Estate records and payoff packet | Deduction depends on who paid and whose return claims it |
Mistakes That Lead To Wrong Deductions
Most trouble starts with one assumption: “It’s on the loan statement, so I can deduct it.” Some amounts you see are not paid yet, and cash-method filers can’t claim them early.
Another slip is mixing up service fees with interest. Origination, title work, appraisals, and servicing charges are not home mortgage interest on Schedule A.
Last, keep the use-of-funds trail. If you want a chance at deducting interest, link each draw to home improvement work on the property.
Step-By-Step Filing Flow
- Gather numbers. Pull tax receipts, servicer statements, and any payoff packet.
- Separate paid versus accrued. List what you paid from your own funds this year.
- Check itemizing. Compare your itemized total with your standard deduction.
- Match the line item. Put property taxes and qualifying mortgage interest on the right Schedule A lines.
- Save the backup. Store payoff and settlement PDFs with your return.
Closing Notes For A Clean Return
Reverse mortgage proceeds are not taxable income, so the loan itself doesn’t raise your tax bill. Deductions are narrower: property taxes you paid can be deductible if you itemize, and mortgage interest is limited by both the use-of-funds rule and the fact that it must be paid to count.
If you keep records and stay focused on the year’s actual payments, the question “are any reverse mortgage expenses tax deductible?” becomes a clear sorting task instead of a guessing game.