As discussed in a recent CNBC article, fixed mortgage rates are now above 7%. More people are being priced out of the housing market or turning to riskier adjustable-rate mortgages.
Personal injury clients are in a unique position. They can use structured settlement proceeds to buy a new home and take advantage of two tax benefits.
Example. A personal injury client nets a $1,405,707 settlement. He wants to buy a home in a nice area with good schools. Even with a $500,000 down payment from the settlement, he still can’t afford the high mortgage payments.
One option is for him to make the $500,000 down payment on the home and structure the remaining $905,707 in settlement proceeds to generate $5,000 per month in tax-free payments over the 30 years (internal rate of return: 5.36%). The money can then go towards the monthly mortgage payment for the life of the loan.
At the end of each year, the client’s mortgage lender provides an IRS 1098 tax form showing the amount of interest paid by the borrower. That amount is considered an itemized tax deduction on the client’s federal income taxes.
The client pays the mortgage with tax-free structured settlement proceeds and can then deduct the mortgage interest on his taxes. The deduction can be substantial and can significantly reduce the client’s overall tax liability.
Please feel free to contact us to discuss mortgage-related and other structured settlement options.
Nick Schuetze (Bio)
& Patrick Farber (Bio)
Frequently Asked | Tax Advantages of Buying A Home With Structured Settlement Proceeds
Yes. Settlement proceeds can be used as a lump-sum down payment or structured into guaranteed, tax-free monthly income designed to cover your mortgage payments over time.
No. Personal injury structured settlement proceeds remain entirely tax-free under IRC Section 104(a)(2), regardless of whether you use them for daily living expenses or housing costs.
Yes. At tax time, your mortgage lender sends IRS Form 1098. The mortgage interest you paid remains an eligible itemized deduction on your federal tax return, even when paid using tax-free settlement funds.
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