Seems like this could become a sticky wicket. For a seller-financed mortgage, I believe you would need proof that you paid the interest (Form 1098 from the seller?) and the seller would be liable for taxes on the earned interest (Form 1099 from the payer?). If it were me, I would get together with the IRS and have them help you straighten out whatever you may have done inadvertently. The IRS is not a bunch of monsters out to screw the taxpayers. They truly are there to do their job and assist people when appropriate. Good luck!
p.s.- There may even be some reward involved if the seller was trying to skirt the rules for a seller-financed deal. For his sake, I would hope he was just as confused as you.
