Reverse Mortgage Loan Interest

[bradstreet22]

With a reverse mortgage loan, we know that interest is not tax deductible until actually paid. For example, a paydown on the loan balance would generate some paid interest. Question: If a borrower with a reverse loan refinances it for a higher loan amount, is there interest considered paid on the old loan at the time of the re-fi? Thank you.

[IRonMaN]

Do the loan documents show that interest was actually paid.  Did they receive a 1098?

[bradstreet22]

Don't have the doc.s yet. Transaction was in 2020 so too early to receive any 1098 form.

[rbynaker · Accepted solution]

Keep in mind the tracing rules.  Even if interest is paid, the only interest deductible would be that which is allocated to the principal amounts borrowed that were used to buy, build or substantially improve the residence.