Is Reverse Mortgage Interest Tax Deductible?

Is reverse mortgage interest tax deductible? Not while it accrues, and for most borrowers not at all, because the IRS generally treats reverse mortgage interest as interest on home equity debt. The exception is the part of the loan that paid for the home itself or a substantial improvement to it, and even that interest counts only in the year someone actually pays it and only if the return itemizes.

I get this question from clients and, more often, from their CPAs. It deserves a careful answer, because the common version is out of date. For years the rule was summarized as "not deductible until you repay the loan," and Oregon's required reverse mortgage disclosure still says exactly that. The timing part is still true. What changed is the IRS's description of what happens once you do repay, and a 2025 federal law made that change permanent.

This page goes deeper than the tax section of my home equity retirement income guide. It walks through why accrued interest cannot be deducted, what IRS Publication 936 says now, the one test that decides whether paid interest qualifies, who can claim it when the loan is repaid after a death, how the mortgage insurance premium fits, and how the Oregon return differs.

This material is not from HUD or FHA and was not approved by HUD or a government agency. A reverse mortgage is a loan that must be repaid, not a government benefit. I am a mortgage specialist, not a tax professional, and nothing on this page is tax, legal or investment advice. Confirm your situation with a qualified tax advisor.

The Short Answer: Is Reverse Mortgage Interest Tax Deductible?

Three conditions all have to be true before a dollar of reverse mortgage interest reduces anyone's federal income tax.

1. The interest has to be paid, not just added to the balance. Interest that accrues month after month and rolls into the loan balance has not been paid, so there is nothing to deduct in those years.
2. The debt it was charged on has to be home acquisition debt. That means loan money used to buy, build or substantially improve the home, or used to refinance a loan that did. Interest on money used for living expenses, travel, care, or paying down other debts is home equity debt interest, and that interest is not deductible.
3. The person paying it has to itemize. With the 2026 standard deduction at $32,200 for a married couple filing jointly, before the extra amounts for age, many retired households never itemize, and a deduction they cannot use does them no good.

So is reverse mortgage interest tax deductible for a typical Bend borrower who used the loan to pay off a small remaining mortgage and then drew on a line of credit for living expenses? Partly, eventually, and only if the year of payoff is an itemizing year. That is a less satisfying answer than yes or no, and it is the accurate one.

Why Reverse Mortgage Interest Is Not Deductible While It Accrues

A reverse mortgage has no required monthly principal and interest payment. Interest is charged every month on the outstanding balance, and instead of being paid, it is added to that balance. Next month's interest is charged on the larger number. That is the reason the balance grows over time, and it is also the reason there is no annual deduction.

Individual taxpayers deduct mortgage interest in the year they pay it. A reverse mortgage borrower who never makes a payment has paid no interest, no matter how large the accrued figure on the annual statement becomes. Oregon's reverse mortgage statute, ORS 86A.196, requires lenders to put this in plain words in their advertising: interest on a reverse mortgage is not deductible from the person's income tax return until the person repays all or part of the loan.

That sentence is correct about timing. The mistake is reading it as a promise that the interest becomes deductible later. Whether it is deductible when it is finally paid depends on the next two sections.

What IRS Publication 936 Says About Reverse Mortgage Interest Now

IRS Publication 936 is the home mortgage interest guide, and it has a short paragraph on reverse mortgages. It confirms the part everyone agrees on: reverse mortgage payments are loan advances, not income, so the amount you receive is not taxable. The paragraph on interest is where the wording has shifted.

The 2017 edition said accrued interest "isn't deductible until you actually pay it, which is usually when you pay off the loan in full," and added that the deduction may be limited because a reverse mortgage is generally subject to the home equity debt limit. The current edition, for 2025 returns, says this instead: "Generally, any interest (including original issue discount) accrued on a reverse mortgage is considered interest on home equity debt and isn't deductible."

The reason for the change is the 2017 tax law. Before it, interest on up to $100,000 of home equity debt was deductible, so reverse mortgage interest usually had somewhere to land once paid. Beginning in 2018 that deduction was switched off. It was scheduled to come back in 2026, but the 2025 federal tax law, Public Law 119-21, removed the end date, so for tax years beginning after 2025 the disallowance of home equity interest is permanent. Publication 936 puts it plainly: no matter when the debt was incurred, you cannot deduct interest on a loan secured by your home to the extent the proceeds were not used to buy, build or substantially improve it.

Notice the word "generally" in the IRS sentence. It leaves room for the case where reverse mortgage proceeds did buy or improve the home, and that case is the whole of the next section.

When Is Reverse Mortgage Interest Tax Deductible? The Acquisition Debt Test

The IRS sorts a mortgage by what the money did, not by what kind of loan it is. The part of any mortgage, reverse or traditional, that meets the home acquisition debt test can produce deductible interest once that interest is paid. Publication 936 describes three ways reverse mortgage money can meet it.

It paid off a loan you used to buy the home. When a reverse mortgage retires an existing purchase mortgage, the new debt is treated as home acquisition debt, but only up to the principal balance of the old loan just before the refinance. If the old loan was itself a cash-out refinance, only the part that traced back to the purchase or to improvements carries over. Paying off the mortgage is the most common first use of a reverse mortgage in Central Oregon, so this is where most borrowers have some acquisition debt without realizing it. Reverse mortgage refinance covers the same carry-over logic when one reverse mortgage replaces another.

It bought the home. With a HECM for Purchase, the reverse mortgage closes together with the purchase, and Publication 936 treats a mortgage taken out within 90 days before or after you buy a home as used to buy it, up to the home's cost. Of every way to use a reverse mortgage, this one puts the most of the balance in the acquisition debt category.

It paid for a substantial improvement. An improvement counts when it adds to the home's value, prolongs its useful life, or adapts it to new uses. A new roof, a main-floor primary suite, or a curbless shower and widened doorways for aging in place can qualify. Repairs that simply keep the home in good condition, such as repainting, do not. The IRS also treats a mortgage taken out within 90 days after the work is finished as used for it, counting expenses from the 24 months before the work was completed.

Two limits apply on top. Acquisition debt secured after December 15, 2017 counts only up to $750,000, or $375,000 when married filing separately, which rarely binds on a HECM but can matter on a jumbo reverse mortgage. And a loan used for several purposes is a mixed-use mortgage, so the interest has to be divided between the qualifying and non-qualifying parts, which is work for your tax preparer using the worksheet in Publication 936.

Is Reverse Mortgage Interest Tax Deductible by Use of the Money?

Here is how that test sorts the common uses of a reverse mortgage. It assumes the interest has been paid and that the return itemizes, the two conditions every row still depends on.

An unused reverse mortgage line of credit does not appear in the table because it accrues no interest. Interest is charged only on money that has actually been advanced or financed into the loan. The practical lesson from the table is record keeping: if part of your loan paid off a purchase mortgage or paid a contractor, keep the payoff statement, the invoices and the closing disclosure with your tax records. Twenty years from now, someone will need to prove what the money did.

When Reverse Mortgage Interest Actually Gets Paid

Since the deduction follows the payment, it helps to know the moments when interest on a reverse mortgage is paid. There are three.

A voluntary payment while you live in the home. A HECM can be prepaid in whole or in part at any time without a charge or penalty under 24 CFR 206.209, and a partial payment is applied in the order the loan note sets out. Some borrowers with a qualifying acquisition debt balance choose to pay some interest each year in a year they already itemize. Before doing that, ask the servicer how the payment will be credited and get the year-end statement showing interest received, because a payment that goes first to other charges on the loan is not all interest. The guide to paying down or getting out of a reverse mortgage covers the mechanics.

Payoff when you sell or refinance. If you sell the home or move to another loan, every dollar of interest that has accrued over the life of the loan is paid at once. That can be a large figure landing in a single tax year, which is one of the few situations where a retired household suddenly has enough deductions to itemize. The qualifying share is still limited to the acquisition debt portion.

Payoff after the last borrower dies. This is the most common ending, and the tax answer is the least settled of the three. It is covered in the next section.

Is Reverse Mortgage Interest Tax Deductible When Heirs Pay Off the Loan?

When the last borrower passes away, the home usually goes to the estate or directly to heirs, who either sell it or pay off the loan to keep it. Because the loan is non-recourse, they never owe more than the home is worth. The interest that accrued over the years is paid at that point, but the borrower who took the loan is no longer the one paying it.

Whether the estate or an heir can deduct that accrued interest depends on facts that differ family to family: who holds title when the payoff happens, who is actually paying, whether the home still counts as a qualified residence for the person claiming the deduction, which part of the balance was acquisition debt, and whether the estate files its own income tax return. I will not give a blanket answer here, because there is not one that is true for everyone. It is a question for the estate's tax preparer, and the right time to ask it is before the home is sold, while the records of how the loan was used are still easy to find.

Adult children who expect to handle this will find the family side of it in what adult children should know about a parent's reverse mortgage.

The HECM Mortgage Insurance Premium After the 2025 Tax Law

A HECM carries FHA mortgage insurance: an upfront premium of 2.00 percent at closing, usually financed into the loan, and an annual premium of 0.50 percent of the balance that accrues just as interest does. The deduction for mortgage insurance premiums expired after 2021, which is why Publication 936 for 2025 returns says it can no longer be claimed.

That changes for 2026. Public Law 119-21 restored the rule that treats premiums for qualified mortgage insurance, which includes FHA insurance, as deductible mortgage interest, effective for tax years beginning after December 31, 2025. The restored rule has the same boundaries as before. It covers only premiums connected to home acquisition debt, and it phases out as adjusted gross income rises above $100,000, reduced by 10 percent for each $1,000 over, so it is gone entirely above $110,000 ($50,000 and $55,000 when married filing separately).

For a reverse mortgage borrower, the same questions from the rest of this page decide the premium as well: has the premium actually been paid, was it charged on acquisition debt, and does the return itemize. Because this rule is newly restored, confirm how your preparer is applying it to a HECM before counting on it.

Itemizing: Whether the Deduction Matters on Your Return

A mortgage interest deduction only lowers taxes on a return that itemizes. For 2026 the federal standard deduction is $32,200 for a married couple filing jointly and $16,100 for a single filer, and taxpayers 65 or older add an additional standard deduction on top. Itemizing pays off only when mortgage interest, property taxes, state income taxes, charitable gifts and qualifying medical costs together exceed that larger number.

The senior deduction created by the 2025 law does not change this math. The IRS describes it as a $6,000 deduction per person 65 or older for 2025 through 2028, phasing out above $75,000 of modified adjusted gross income ($150,000 for joint filers), and available whether you itemize or take the standard deduction.

The practical result is that ordinary years of a reverse mortgage rarely produce a usable deduction, even on an acquisition debt balance, because no interest is paid in those years. The year the loan is paid off is different. A large interest payment, combined with property taxes and a year of medical bills, can make itemizing worthwhile once.

Is Reverse Mortgage Interest Tax Deductible on an Oregon Return?

Oregon starts from your federal income and has its own itemized deduction schedule, Schedule OR-A, along with a standard deduction far smaller than the federal one. In the Oregon Department of Revenue's 2025 Publication OR-17, a joint return with one spouse 65 or older has an Oregon standard deduction of $6,670. Because the gap between itemizing and not itemizing is so much narrower for Oregon, a year with a large interest payment can matter more on the state return than on the federal one. Ask your preparer to check both.

Oregon also matters in two other ways. It taxes pensions and traditional IRA withdrawals as ordinary income, which is what makes reverse mortgage proceeds, as loan advances rather than income, useful in a Central Oregon retirement budget in the first place. And ORS 86A.196 requires the lender to tell you in writing, before you sign, that a home with a reverse mortgage is not eligible for Oregon's senior property tax deferral program. Neither point changes the interest rule, but both belong in the same conversation with your tax advisor.

Planning Around Reverse Mortgage Interest in Bend and Central Oregon

Deschutes County's population is 21.8 percent age 65 and older, and Bend's median home value sits in the mid-$700,000s, so the households asking this question often have meaningful equity and a CPA who asks good questions. After a lot of these conversations, here is how I would think about it.

• Never choose a reverse mortgage for the deduction. For most borrowers the deduction is small, delayed, or not available. The loan should make sense on cash flow and on the plan for the home without it.
• Know how the money is used at closing. A payoff of a purchase mortgage and a contractor's invoice for a qualifying improvement are the uses that can create acquisition debt. Keep the documents that prove it.
• Bring your tax advisor in before closing, not after. The classification is set by what the money does. Once it has been spent, the category cannot be changed.
• Tell the family where the records are. If the loan is repaid after your death, the people handling the payoff will need the same documents, and the question of who can claim the interest will be theirs to ask.
• Talk to a HUD-approved counselor. Counseling is required before a HECM closes, and counselors are a good independent check on how the loan fits your situation.

The reverse mortgage pros and cons page lays out the rest of the decision, how a reverse mortgage works covers the foundation, and the Bend reverse mortgage guide covers the local picture.

Is Reverse Mortgage Interest Tax Deductible? Frequently Asked Questions