Promissory note

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RRR1
RRR1 Member Posts: 1 Newcomer
edited January 15 in General

I sold my condo to an investor who is renting it full time. I sold it under a promissory note where I get paid monthly interest only payments for 3 years with a lump sum payment after 3 years. I assume have to pay tax on the income from the promissory note, but since the borrower is renting the property with no intention to live there, he is deducting the interest as a business loan. Does this change anything on my end being the lender? Or do I just report all the interest income on my tax return as usual.

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  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
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    Hi RRR1,

    What the new owner does with the property has no bearing on how your taxes are filed. So don't worry about that. Report the interest income.

    You will need to report the sale as an Installment Sale, reporting the Interest Income you collect each year. The capital gains will be prorated and postponed, based on any down payment you got and then the lump sum you receive when the ballon payment is due.

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