Senior Exemptions

• A senior exemption is a partial property tax exemption based on age, and sometimes additionally based on income. Each state has its own set of property tax rules. Most states, according to the Retirement Living Information Center, offer some form of a senior exemption.
  
  

Reverse Mortgage Options

• A reverse mortgage is a home loan available to seniors age 62 and older. Unlike a traditional mortgage, a reverse mortgage does not require good credit or impose income requirements. Most notably, it does not have to be repaid while you remain living in the home. You can take a reverse mortgage in several ways: as a lump sum, as a line of credit, or through monthly payments. If you have an existing mortgage, the reverse mortgage proceeds must first be used to pay off that mortgage. Some borrowers take only as much money as is required to pay off a first mortgage and keep the remainder available through a line of credit.
  
  

Reverse Mortgage as Income

• Because the mortgage is repaid eventually -- after you sell, die, or otherwise move out of the house for a year -- it is not considered income by the IRS. It is classified as a loan. For programs such as Social Security and Medicare, reverse mortgage money does not affect eligibility, even when you receive Social Security benefits between ages 62 and 65, during which time income, but not loans, limits Social Security payments. Medicaid, however, looks not at "income" per se, but at available assets. This program, which is a combined state and federal program available to low-income participants that pays for some medical-related costs not covered by Medicare, such as a nursing home, won't look at the portion of reverse mortgage payments that paid off a prior mortgage or treat a credit line as available funds. But it does count monthly payments above the limits it uses to determine eligibility.
  
  

Senior Exemption Rules

• Whether your senior exemption rules allow you to accept reverse mortgage proceeds depends on your state law and, in some cases, on the payment option you have chosen. In some states, eligibility for a senior exemption is based solely on age. In these states, taking a reverse mortgage in any form will not affect an exemption. In other states, both age and income come into play. In the state of Washington, for example, income is limited to $35,000 a year and includes income that is not taxable, such as annuities. The monthly payment option under the reverse mortgage program is considered an annuity under Washington's definition. So if your income is over $35,000 and you receive reverse mortgage monthly payments, you would not be eligible for a senior exemption. But if you received a lump sum payment or withdrew money from a line of credit, presumably you would. To determine the specific requirements for exemption eligibility, review your state's application.