Home » FA Online » FA News » Despite Tough Sell, Don't Ignore Reverse Mortgages

« Previous Article | Next Article »

Despite Tough Sell, Don’t Ignore Reverse Mortgages

May 8, 2019 • Page 2 of 2

And reverse mortgage loans aren’t taxed, so they can help advisors manage clients’ tax liabilities as they start tapping assets for retirement.

Longbridge plans of have its own modeling software up on its website next Monday to help advisors analyze how reverse mortgages will impact clients. “Traditional [financial planning] software doesn’t account for a home,” Pfau said. The usual assumption is to assume depletion of a portfolio, then analyze use of a reverse mortgage, he said.

In response to an advisor’s comment about the difficulty of explaining reverse mortgages to clients who think there’s a big commission on the product, Mayer said Longbridge’s software might help. (The lender makes its money on client loans). “The big money for us is where a client borrows money over time” rather than on an upfront commission.

Mayer added that advisors can’t quote the product without a mortgage license, so urged advisors to refer clients to a mortgage broker who can make loans.

« Previous Article | Next Article »

2 Comments

Login in order to post a comment

Comments

CMayer 4 years ago

James- Sorry for the confusion. This came up at the session. You are correct about unpaid debt that is forgiven in a non recourse transaction. The reference to taxes was about draws from the home. Reverse mortgage draws are not taxable for federal income tax purposes. Thanks for your comments.
James_E_Veale_CPA_MBT 4 years ago

It is unclear why the article states that reverse mortgages aren't taxed. They are no different for income tax purposes than any other nonrecourse collateralized debt. [The US Code at 15 USC 1602(cc) makes it clear that all reverse mortgage transactions under federal law are nonrecourse.] In the Code of Federal Regulations, the following is stated at 26 CFR 1.1001-2(a): " (1) In general. Except as provided in paragraph (a) (2) and (3) of this section, the amount realized from a sale or other disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the sale or disposition. (2)Discharge of indebtedness. The amount realized on a sale or other disposition of property that secures a recourse liability does not include amounts that are (or would be if realized and recognized) income from the discharge of indebtedness under section 61(a)(12). For situations where amounts arising from the discharge of indebtedness are not realized and recognized, see section 108 and Â§ 1.61-12(b)(1)." So in any case where the loan is not paid in full and the underlying collateral (home) is transferred in a taxable transaction, the unpaid portion of a reverse mortgage is treated as additional proceeds in the transfer of the collateral. The author seems to be unclear about the taxation of nonrecourse debt and/or that all reverse mortgage transactions are nonrecourse under federal law.