I just learned the situation may be a bit more complicated. The original contract was singed in 2004 by the girlfriend of the man that wanted to buy the property. Since her name is on the contract, I guess she is technically considered the buyer. He has been living there since 2004 but his girlfriend moved out years later when they broke up. He has always made direct payments to the seller (originally my Mom and now me since she passed). The girlfriend never made payments but her name is still on the contract.
My question is regarding the use of 1040 Schedule B. The instructions state, "You received interest from a seller-financed mortgage and the buyer used the property as a personal residence." Since the girlfriend is technically the buyer and does not live there as her primary residence, can we still use Schedule B? If not, how and where do we report the interest? Or do we now have to pay tax on interest and principal?
