Direct Taxes Code Is Silent On Tax Therapy Of Reverse Mortgages

Most people choose the RAL option when they need their refund money for immediate purposes.

Important Tax Refund Decisions – RAL vs Direct Deposit

Srinivasan Anand G.The Direct Taxes Code Bill, 2009 is silent on the tax treatment of reverse mortgage. The Bill, 2009 (‘the Code’) is silent on the tax treatment of reverse mortgages. As the Code is silent on reverse mortgage, a question arises what will be its tax implica­tions under the Code?

The reverse mortgage is so-called because the payment stream is reversed. Instead of the borrower making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the borrower. While a reverse mortgage loan is outstanding, the borrower owns the home and holds title to it, without having to make any monthly mortgage payments.There is no transfer of title in property by the borrower to the lender when he mortgages property to the lender. The transfer/aliena­tion of property occurs “at the point of alienation of the mort­gaged property by the mortgagee for the purposes of recovering the loan.”