This month’s issue outlines the benefits and risks of reverse mortgages, includes a recap of all too common IRS tax scams, reviews some common educational benefits and provides a list of “frequently missing” information that can often hold up filing your tax return.

Is a Reverse Mortgage the Solution? For many the transition to retirement means adjusting to a fixed income that is often lower than the income you received while employed. To make matters worse, the most valuable asset you have is usually your home, but it cannot be readily turned into cash. To help with this lack of financial liquidity, banks offer reverse mortgages as a way to tap into the equity of your home.

How a reverse mortgage works

A reverse mortgage is a special bank loan to a qualified senior citizen (age 62 and over) that enables older homeowners to tap the equity they have in their home. Importantly, no repayment of the loan is required until the home is no longer the borrower’s primary residence. This means you can receive cash today based upon the equity of your home without making loan payments. The bank receives repayment for their loan out of the proceeds obtained when the home is sold at a later date.

Why does the bank do this?

First, the bank charges up-front fees to create the reverse mortgage.

Second, the bank still receives their interest, service fees and principal. They just need to be patient as the payments occur after the borrower leaves the home (usually when the house is sold).

Third, the bank has little risk. The bank is insured by a federal agency so their risk is controlled and they are guaranteed repayment.

What are the advantages?

What are the Pitfalls?

While not for everyone, reverse mortgages are an option to use the equity of your home if you are retired and on a fixed income. If you are interested, most programs provide a free face-to-face counseling session from an independent counselor prior to a bank being allowed to offer the reverse mortgage.

Each year the IRS announces the “Dirty Dozen Tax Scams” they encounter most frequently regarding frivolous tax arguments and fraud. While seven of the “scams” are related to, “don’t cheat we have our eyes on you,” the other five are scams that all of us should be ready to detect so we do not become victims.

Tax Breaks for Education

Which is right for you?

Determining which program is right for you takes tax planning. Remember you may not double dip expenses OR programs. This means you may not use the same qualified educational expense for multiple programs (including applying the expense to any scholarship or other benefit). However, if you have more than one student, you can apply different programs to different students. Other considerations;

Common Missing Tax Return Items

Want your tax return filed quickly and without error? Looking for a quick refund? Then double-check this list of items that are often overlooked. These missing items often cause delays in getting your tax return filed and your much anticipated refund into your hands.

Hopefully, by knowing these commonly missed pieces of information you can prepare to have your tax filing experience be a smooth one.
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