Does a loan repaid to me after sale of a rental property need to be reported as capital gains?

[hart2937]

My daughter and I purchased a home in 2011 and we used $25,000 of my money for the down payment and closing costs (they could not qualify for a loan without my name being on the loan).  She and her husband  lived in the home until 2014 when they moved out of state (I never occupied the house).  We attempted to sell the house (listed with a Realtor) but were unable to sell.  Finally rented it out and treated it as a rental property for tax purposes.  In June 2017 the tenants vacated the house and we again placed it on the market.  Finally closed in March 2018.  At closing, my $25,000 was returned to me and the remaining proceeds went to my daughter.  Form 1099-S issued in each of our names for the total proceeds ($72,500).  Must I claim the $25,000 as a long term capital gain even though I did not make any money, or handle it as an investment with no gain?  My daughter will use $47,500 (less selling expenses) as a gain.  

[Leonard · Accepted solution]

The repayment of your $25,000 loan is a non-taxable return of capital that you do not have to report on your tax return.

However, any interest you received from the loan will be reported as interest income on your tax return