Home Equity Conversion Mortgage (HECM) Question

Q: I am a senior with no children and have initiated the process to obtain a federally guaranteed home equity conversion mortgage, or HECM. My primary reason for getting a reverse mortgage is to eliminate the monthly cash outlay for housing expense. How and when does one account for the interest on this type of loan for tax purposes? Does one take an interest deduction annually for the interest accruing that is added to the principal balance? Or is the only time the interest is taken into account for income tax purposes at the time of disposal of the home or the borrower's death?

_ Ron, Truckee

A: Mortgage interest is typically tax-deductible on your primary residence when you pay the interest charges. Because a reverse mortgage does not require interest payments, you cannot take a deduction for something you did not pay.

The interest deduction can be taken when the reverse mortgage is paid off, typically when the homeowner dies or moves out of the house.

(Scott Hanson, CFP, is a senior adviser with Hanson McClain, an investment advisory company and registered principal with Securities America, member NASD/SIPC. E-mail questions to questions(at)moneymatters.com.)