Mortgage Insurance on Reverse Mortgage


K

KEBSCHULLW

Client has 1098 for a Reverse Mortgage that shows over $5000 in
Mortgage Insurance in Box 4. Is this deductible and if so over what
time period? As I understand it, money was taken from the reverse
mortgage to pay off first and second mortgages. This all went down
late in 2008.

WDK
 
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M

Mark Bole

Client has 1098 for a Reverse Mortgage that shows over $5000 in
Mortgage Insurance in Box 4. Is this deductible and if so over what
time period? As I understand it, money was taken from the reverse
mortgage to pay off first and second mortgages. This all went down
late in 2008.
If the debt re-financed was acquisition debt, the insurance on that
amount could be deducted just like interest, since the insurance
contract was issued in 2008. However if any of the $5K was pre-paid
insurance for a future tax year, it should be allocated, see Pub 936.

-Mark Bole
 
B

Bob Sandler

Client has 1098 for a Reverse Mortgage that shows over $5000 in
Mortgage Insurance in Box 4. Is this deductible and if so over what
time period?
It's probably not normal mortgage insurance like you would
have on a standard mortgage. The following is from an
article about reverse mortgages today in the newspaper that
some people in this group love to hate.

"There is also an upfront insurance premium equal to 2
percent of the home's appraised value or lending limit (up
to $625,500), which protects borrowers if anything happens
to the lender and guarantees that the total debt owed will
never exceed the home's value."

Bob Sandler
 
L

lotax

"There is also an upfront insurance premium equal to 2
percent of the home's appraised value or lending limit (up
to $625,500), which protects borrowers if anything happens
to the lender and guarantees that the total debt owed will
never exceed the home's value."

What utter doubletalk. *Who* insures *whom* against *what*?

As long as the borrower is paying for it, nobody seems to care one
whit about the reality of fees charged during a mortgage financing.
In general, what a ripoff, and in specific, what a ripoff! Consumers
should rise up and make the reverse mortgage business get honest!!
 
L

lotax

My admittedly naive understanding was that the lender had "bought" the
downside of the real estate market risk. And if there's something (I
don't know if this PMI is it or not, I'm that naive] covering him
against that loss, it is HE - the mortgage lender - who should pay the
premium. To dump that cost directly onto the borrower - right there
at the settlement, where everybody can see it [but nobody questions
it...!] - should be an insult to intelligent/informed/responsible
customers...
 
L

lotax

"...and guarantees that the total debt owed will never exceed the
home's value." That risk is the lender's risk, and I do not
understand why the borrower pays a premium to insure against it. Is
this a product sold by AIG? I'm *not* laughing at my own black
humor. That's rare. I am 62 years old - eligible for this reverse
mortgage product - and I have seen people get ripped off by what I
would consider unconscionable fees that weren't even cleverly buried
in the settlement.
 
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H

Han

(e-mail address removed) wrote in @z1g2000yqn.googlegroups.com:
"...and guarantees that the total debt owed will never exceed the
home's value." That risk is the lender's risk, and I do not
understand why the borrower pays a premium to insure against it. Is
this a product sold by AIG? I'm *not* laughing at my own black
humor. That's rare. I am 62 years old - eligible for this reverse
mortgage product - and I have seen people get ripped off by what I
would consider unconscionable fees that weren't even cleverly buried
in the settlement.
Well, the lender is saying that he wants his ass covered in case the
housing market collapses again, in the specific case of your house. He
wants insurance for that risk, and thinks you should cover the cost. You
are not forced to go into this deal. Maybe you should ask to get a
yearly adjustment to the payout according to the valuation of your house
at yearly (or whatever) intervals, so you can reap the benefits of a
rising housing market, when that comes.

To me (I'm a fully qualified expert because I am a biochemist, and have
absolutely no bias - please note the sarcasm), it seems that we are near
the bottom of the housing valuation, and it does not look like a good
time to go into a deal like this right now. I don't know your
circumstances, but to me it seems that a home equity loan might be more
appropriate now. I am 64, still working, in part because I want to, in
part because I have to. My HELOC only costs 2.24% (Chase).
 
K

KEBSCHULLW

If the debt re-financed was acquisition debt, the insurance on that
amount could be deducted just like interest, since the insurance
contract was issued in 2008. �However if any of the $5K was pre-paid
insurance for a future tax year, it should be allocated, see Pub 936.

-Mark Bole
Mark,

I think the insurance amount entered in Box 4 on the W-2 is
deductible, otherwise it wouldn't be in Box 4. I read something about
deducting it over 84 months. I asked client to bring in the reverse
mortgage papers so I can see what is going on.

Now if someone could get what's reported in Box 14 on a W-2 sorted out
or identified I may have a chance at maintaining my sanity. It's just
great when some of the items are deductible (medical insurance paid
by employee) and others aren't (like state disability insurance
taxes).

Cheers,

WDK
 
A

Arthur Kamlet

Mark,

I think the insurance amount entered in Box 4 on the W-2 is
deductible, otherwise it wouldn't be in Box 4. I read something about



Is that a typo?
 
M

Mark Bole

Now if someone could get what's reported in Box 14 on a W-2 sorted out
or identified I may have a chance at maintaining my sanity. It's just
great when some of the items are deductible (medical insurance paid
by employee) and others aren't (like state disability insurance
taxes).
California SDI (state disability insurance) is deductible as a mandatory
state income tax on federal Schedule A, even when it is reported in Box
14 of the W-2 (common). Voluntary plans (e.g. VPDI) are not.

Excess withholding on SDI/VPDI from two or more employers is also
refundable at the state level, just like OASDI on federal.

-Mark Bole
 
B

Bob Sandler

Now if someone could get what's reported in Box 14 on a W-2 sorted out
or identified I may have a chance at maintaining my sanity. It's just
great when some of the items are deductible (medical insurance paid
by employee) and others aren't (like state disability insurance
taxes).
State disability insurance taxes in NY, NJ, RI, and CA are
deductible as income tax (Pub. 17, p. 147). I guess that
makes your problem worse.

Bob Sandler
 
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K

KEBSCHULLW

State disability insurance taxes in NY, NJ, RI, and CA are
deductible as income tax (Pub. 17, p. 147). I guess that
makes your problem worse.

Bob Sandler
Bob:

Yup!, I guess so. The point that I was trying to make is that some of
the items listed in Box 14 can be used to reduce taxable income and
some can't and the labeling of the items listed in Box 14 can be
beyond cryptic.

Thanks for the info.

Cheers,

WDK
 
K

KEBSCHULLW

Is that a typo?
Not exactly, I called IRS about a week ago and I believe they said it
was not deductible and certainly not all deductible for tax year 2008.

I just came across this in the IRC.

Section 163(h)(3)(E)

E) Mortgage insurance premiums treated as interest
(i) In general Premiums paid or accrued for qualified mortgage
insurance by a taxpayer during the taxable year in connection with
acquisition indebtedness with respect to a qualified residence of the
taxpayer shall be treated for purposes of this section as interest
which is qualified residence interest.

snip

Section 163(h)(4)(E-F)

(E) Qualified mortgage insurance
The term “qualified mortgage insurance” means—
(i) mortgage insurance provided by the Veterans Administration, the
Federal Housing Administration, or the Rural Housing Administration,
and
(ii) private mortgage insurance (as defined by section 2 of the
Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in effect on
the date of the enactment of this subparagraph).
(F) Special rules for prepaid qualified mortgage insurance
Any amount paid by the taxpayer for qualified mortgage insurance that
is properly allocable to any mortgage the payment of which extends to
periods that are after the close of the taxable year in which such
amount is paid shall be chargeable to capital account and shall be
treated as paid in such periods to which so allocated. No deduction
shall be allowed for the unamortized balance of such account if such
mortgage is satisfied before the end of its term. The preceding
sentences shall not apply to amounts paid for qualified mortgage
insurance provided by the Veterans Administration or the Rural Housing
Administration.

The last sentence above is not reflected in IRS Pub 936 as it would
apply to mortgage insurance on a reverse mortgage that client has.
Therefore my conclusion, at least for today, is the entire $5000+ is
deductible for 2008.
ArtKamlet  at  a o l dot c o m  Columbus OH  K2PZH
Cheers,

WDK
 
D

Dick Adams

Client has 1098 for a Reverse Mortgage that shows over $5000 in
Mortgage Insurance in Box 4. Is this deductible and if so over what
time period? As I understand it, money was taken from the reverse
mortgage to pay off first and second mortgages. This all went down
late in 2008.
What kind of insurance is this? That makes a big difference.
 
K

KEBSCHULLW

What kind of insurance is this? �That makes a big difference.
Dick:

Mortgage Insurance on Reverse Mortgage taken out in December (I
believe) of 2008. Box 4 on 1098 had an entry of over $5000.
Taxpayer's income was not such that the allowable mortgage insurance
is phased-out. The first and second mortgages were paid off by the
reverse mortgage so taxpayer no longer has a monthly mortgage
payment. BTW there was no mortgage interest shown on the 1098, maybe
because the mortgage was only taken out in December 2008 or because of
the nature of the reverse mortage.

What do 1098's for reverse mortages generally show for interest
payments? It is my view that mortgage iinsurance payments in Box 4
are deductible provided there is no AGI based phase-out. If not, IRS
needs to come up with a better plan.

What say you?

Cheers,

WDK
 
A

Arthur Kamlet

Not exactly, I called IRS about a week ago and I believe they said it
was not deductible and certainly not all deductible for tax year 2008.


The message says "box 4 on the W-2" and I asked if that was a
typo, and got a "not exactly."


Making me one confused reader.

I just came across this in the IRC.

Section 163(h)(3)(E)

E) Mortgage insurance premiums treated as interest
(i) In general Premiums paid or accrued for qualified mortgage

It seems to me the premium was neither paid nor accrued but was
capitalized into the mortgage loan amount, adding to principal.

insurance by a taxpayer during the taxable year in connection with
acquisition indebtedness with respect to a qualified residence of the
taxpayer shall be treated for purposes of this section as interest
which is qualified residence interest.

snip

Section 163(h)(4)(E-F)

(E) Qualified mortgage insurance
The term qualified mortgage insurance means
(i) mortgage insurance provided by the Veterans Administration, the
Federal Housing Administration, or the Rural Housing Administration,
and
(ii) private mortgage insurance (as defined by section 2 of the
Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in effect on
the date of the enactment of this subparagraph).
(F) Special rules for prepaid qualified mortgage insurance

Prepaid seems to me to indicate it was paid, not capitalized.

Any amount paid by the taxpayer
Again, there's that nasty word "paid"
 
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D

Dick Adams

Mortgage Insurance on Reverse Mortgage taken out in December (I
believe) of 2008. Box 4 on 1098 had an entry of over $5000.
...
Is not Mortgage Insurance to protect the mortgagee in case of
default? If the first and second mortgages have been paid off,
who is being insured for what? Read the Reverse Mortgage
contract to see what it says about this insurance. If it is
really an expense of the homeowner, the homeowner almost
certainly have gotten a SUBSTANTIALLY lower premium.

Ask the Reverse Mortgage company for a copy of this policy.
This smacks of a hidden add-on to increase the actual interest
to be paid. Regardless it should have appeared on the
truth-in-lending statement.

In my rarely humble opinion, the goniffs who were peddling
sub-prime mortgages are now peddling reverse mortgages.

Dick
 
K

KEBSCHULLW

Is not Mortgage Insurance to protect the mortgagee in case of
default? If the first and second mortgages have been paid off,
who is being insured for what? Read the Reverse Mortgage
contract to see what it says about this insurance. �If it is
really an expense of the homeowner, the homeowner almost
certainly have gotten a SUBSTANTIALLY lower premium.

Ask the Reverse Mortgage company for a copy of this policy.
This smacks of a hidden add-on to increase the actual interest
to be paid. Regardless it should have appeared on the
truth-in-lending statement.

In my rarely humble opinion, the goniffs who were peddling
sub-prime mortgages are now peddling reverse mortgages.

Dick
Dick:

Here is what Bob Sandler wrote back on March 15 in this thread."There is also an upfront insurance premium equal to 2
percent of the home's appraised value or lending limit (up
to $625,500), which protects borrowers if anything happens
to the lender and guarantees that the total debt owed will
never exceed the home's value."

I think what Bob wrote applies to the taxpayer' situation. I have
asked the client to bring in the paper work for the reverse mortgage.
We will see.

BTW, thanks for staying up late to post a reply.

Cheers,

WDK
 
S

Stuart A. Bronstein

If I understand this correctly, the Reverse Mortgage Lender
is assuming the position of a Home Equity Lender and leaving
the homeowner on the hook for everything. As such this
appears to me to be a fee paid for the benefit of the
lender as opposed to traditional mortgage insurance which
protects the lender if the mortgagor defaults.
That's what it sounds like to me, too. On the reverse mortgage if the
home owner/seller dies before the home equity is depleted, her estate
will get a refund of the difference. But if she lives too long, the
lender will need perhaps a type of life insurance to keep the
transaction going until the person dies.

Stu
 
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K

KEBSCHULLW

Client has 1098 for a Reverse Mortgage that shows over $5000 in
Mortgage Insurance in Box 4. �Is this deductible and if so over what
time period? �As I understand it, money was taken from the reverse
mortgage to pay off first and second mortgages. �This all went down
late in 2008.

WDK

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Here is what I found on Wikipedia regarding Reverse Mortgages:

Related taxes
The American Bar Association guide[2] advises that generally,

the Internal Revenue Service does not consider loan advances to be
income,
annuity advances may be partially taxable, and
interest charged is not deductible until it is actually paid, that is,
at the end of the loan.
The mortgage insurance premium is deductible on the 1040 long form.

So my client is going to get the full deduction for the full $5000+
mortgage insurance
premium payment paid in 2008 on the 2008 tax return

Thanks to all the responded.

Cheers,

WDK

========================================= MODERATOR'S COMMENT:
In the future, please delete the standard trailer from message to
which you are responding. RDA
 
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