Reverse mortgages and taxesBorrowed money isn’t income. Here’s why that matters.

Medicare Part B and Part D premiums rise in steps for higher incomes, based on your modified adjusted gross income from two years earlier. The surcharge is called IRMAA. Cross a threshold by a dollar and the higher premium applies for the whole year, for each spouse on Medicare.

IRA withdrawals and Roth conversions count toward it; HECM advances don’t. In a year when income would land just over a threshold, spending from the line instead of the IRA can keep you under it.

Source: Social Security Administration, “Medicare premiums: rules for higher-income beneficiaries”. Thresholds are set each year.

Up to 85% of Social Security benefits can be taxable, depending on “combined income”: adjusted gross income, plus nontaxable interest, plus half of your benefits. For a married couple filing jointly, benefits start becoming taxable above $32,000 of combined income, and up to 85% is taxable above $44,000 ($25,000 and $34,000 for single filers). Those thresholds have never been adjusted for inflation.

Every IRA dollar can pull more of the benefit into the taxable column, so the effective tax on that dollar is higher than the bracket suggests. A HECM draw adds nothing to combined income.

Source: IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

• Not as it accrues. With no monthly payment, interest builds up on the balance and is usually paid all at once, when the loan is repaid. Nothing is deductible before it is actually paid.
• Even then, only in limited cases. IRS Publication 936 says interest accrued on a reverse mortgage is generally treated as home equity interest and isn’t deductible. Some tax professionals take the position that interest on the part of a loan used to buy, build or substantially improve the home (a HECM for Purchase, for example) is deductible when actually paid, within the mortgage interest limits, as the IRS has said of home equity loans used that way (IR-2018-32). Whether that applies to you is your CPA’s call.
• The order of payments matters. HUD applies payments first to the mortgage insurance balance, then servicing fees, then interest, then principal.
• Mortgage insurance is back on the list. After several years of not being deductible, mortgage insurance premiums paid in 2026 and later can again be deducted as mortgage interest under the 2025 federal tax law (Pub. L. 119-21), reduced above $100,000 of adjusted gross income and gone above $109,000 ($50,000 and $54,500 if married filing separately), for insurance on debt used to buy, build or improve the home, and only if you itemize. How that applies to FHA insurance that accrues on a HECM balance is a question for your CPA.
• Heirs. When heirs sell an inherited home, they generally receive a stepped-up basis, so a prompt sale usually produces little taxable gain. Interest paid at payoff may be deductible on the right return; that is your estate’s CPA’s call.

Sources: IRS Publication 936, Home Mortgage Interest Deduction; HUD Handbook 4330.1, §13-21 (application of partial prepayments). These rules are complex and still being interpreted; they are summarized here so you know what to ask, not how to file.

Social Security retirement benefits and Medicare eligibility aren’t means-tested, so loan advances don’t affect them. Needs-based programs are another matter: SSI and Medi-Cal count money you keep in the bank past the month you draw it as an asset, and California reinstated a Medi-Cal asset limit on January 1, 2026. If either program matters to you, draw only what will be spent that month, and talk with your elder-law attorney before anything is signed. For elder law attorneys →