Florida Reverse Mortgage Interest: Can You Write it Off?
If you have a Florida reverse mortgage, you know that the interest is added to the loan balance each year but is not paid until the home loan is paid off, usually at maturity or when the home is sold.
But what can you deduct in interest?
Let’s say you’re paying approximately $20,000 per year interest on paper until you sell your home. If you sell the home in 5-10 years, you’ll have paid $100,000-200,000 in interest.
But can that amount be a tax deduction when you sell the home? Isn’t there some way that you can deduct it while interest is accumulating before you go forward with selling the home?
To answer the last question first: No. For practical purposes, you cannot deduct the interest each year while it is accumulating.
The only way to make this manuever work for Florida mortgage loans is if you switched to the accrual method of accounting, which is not generally feasible for individual taxpayers, who typically use the cash method.
As for the first part of that question, the Florida home loan tax deduction could be limited, depending on how he used the money.
As a general rule of thumb, you can deduct interest on up to $1 million in Florida mortgage debt secured by your home as long as you use the money to buy, build or improve your home.
If you borrow money secured by your home and use it to do anything other than to buy, build or improve the home (a Florida home equity loan would qualify) the loan is considered home equity debt.
In general, you can deduct interest only on up to $100,000 in home equity debt. That same $100,000 limit applies to the amount of mortgage debt, not to the interest payment on that debt.
Assuming you had no other debt on this piece of real estate, if you took out a reverse Florida mortgage for $250,000 and used $50,000 to remodel your kitchen and $200,000 to buy a car, take a vacation and pay medical bills, you could deduct interest on the first $150,000 of debt.
Also, note that debt from home equity loans is not tax deductible under the alternative minimum tax. For more on reverse mortgages, apply above.
