Reporting Installment Sale Interest Income on Form 1065 Schedule K

[Kanepete]

My wife and I have a real estate partnership LLC and we file form 1065.  We sold some real estate in an installment sale and have received interest payments from the buyer on the seller financed note that we are now holding.  We are trying to figure out where we report this interest income on the Form 1065.  Our current "guess" right now is to report it on line 5 (interest income) on Schedule K.  Can anyone confirm this or advise on another way of reporting the income?  We are using TurboTax for Business on our PC.  The installment sale form (6252) was created correctly through the TurboTax Step by Step method but at no time did the Step-by-Step method ask us about interest received and a review of Form 6252 along with the accompanied form instructions seem to clearly indicate that interest received is not entered anywhere on the Form 6252.

[PatriciaV]

Yes, you are correct. The step-by-step interview does not offer a topic specific to installment sale payments & interest. You can designate that a sale of business/rental property was an installment sale, which will trigger Form 6252. 

Any interest paid with the principal received during the year may be entered under Federal >> Income >>Other Income >> All Other Income. Your entry and description will appear on Form 1065 p1-4 Line 7 and on Schedule K Line 14c (SE-Gross nonfarm income).

Note that according to IRS Tax Topic 705 - Installment Sales, "You generally report interest on an installment sale as ordinary income in the same manner as any other interest income."

[Kanepete]

Hello PatriciaV,

Thank you for responding to my question.  We were hesitant to place this interest income received on the note as other income as you suggest because it ends up being reported on Schedule K as Self-Employment Income which causes us all kind of issues on our personal taxes.  Also, I agree with your note [Note that according to IRS Tax Topic 705 - Installment Sales, "You generally report interest on an installment sale as ordinary income in the same manner as any other interest income."], thus coming to the conclusion to report this income received on the note in Line 5 of Form 1065 Schedule K, Interest Income, as this is where we report other interest income that we received.