Reporting interest earned from a private mortgage loan

[frugalliving]

Hello Tax Pros!

Background: I loaned my daughter $150k to buy a house. A closing company executed the transaction. I hold the mortgage and lien on the house. Just like a regular mortgage, I receive monthly principal and interest payments from my daughter. I give her a Form 1098 showing interest paid for her taxes.

Question: Where do I report the interest that I receive on my 2019 taxes?

Thanks!

 

[LdiJ]

Hello Tax Pros!

Background: I loaned my daughter $150k to buy a house. A closing company executed the transaction. I hold the mortgage and lien on the house. Just like a regular mortgage, I receive monthly principal and interest payments from my daughter. I give her a Form 1098 showing interest paid for her taxes.

Question: Where do I report the interest that I receive on my 2019 taxes?

Thanks!

You just report the interest received on Schedule B, which then flows through to your 1040.

 

[frugalliving]

You just report the interest received on Schedule B, which then flows through to your 1040.

Thank you! Much appreciated!

 

[frugalliving]

A follow-up question just to make sure I understand.

Does a seller-financed mortgage only apply if I owned the home?

I didn't sell her a house that I owned/lived-in. She used the money to buy a house that she found on the market.

Do I claim the interest as "Other Interest" or "Seller-financed mortgage?"

Thanks!

 

[doucar]

Other interest.

 

[Taxing Matters]

A follow-up question just to make sure I understand.

Does a seller-financed mortgage only apply if I owned the home?

Correct. The instructions for Schedule B (which is where interest income is reported) states:

If you sold your home or other property and the buyer used the property as a personal residence, list first any interest the buyer paid you on a mortgage or other form of seller financing. Be sure to show the buyer’s name, address, and SSN. You also must let the buyer know your SSN. If you don't show the buyer’s name, address, and SSN, or let the buyer know your SSN, you may have to pay a $50 penalty.​

(bolding added). So it's a seller financed mortgage if you both sell the property and retain the mortgage on that the property.

Do I claim the interest as "Other Interest" or "Seller-financed mortgage?"

As doucar correctly stated, it is other interest.