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self employment tax for interest received from mortgage note as part of real estate sale

in 20223 my partnership LLC sold a rental property.  As part of the sale, let's say $100,000 was financed by my LLC, with a promissory note and lien and interest paid monthly, at 5% annually.  Where do I enter this in TT Business?  

 

I believed the answer was Income -> Other Income -> All other Income -> then enter the amount with description like "seller finance note interest".  My concern is that when I do this the amount of interest is showing up on the K-1 in both Box 1 as Ordinary Business income (seems correct) AND ALSO BOX 14 (A and C) AS SELF-EMPLOYMENT EARNINGS (seems incorrect).

 

I'm puzzled as I considered this to be a passive activity (and also did not consider myself an employee...), so the idea that receiving this interest income subjects me to SE tax (in addition to regular Fed and state income taxes) seems inappropriate. 

 

I feel that I am missing something... any comments appreciated. 

 

Thanks 

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1 Reply
ThomasM125
Employee Tax Expert

self employment tax for interest received from mortgage note as part of real estate sale

No, the interest income would be entered under the Investment Income section and then Interest and Dividend Income:

 

 

It will carry over to line 5 of your Schedule K and K-1 as interest income.  It will be then be treated as such on your personal tax return as reported on your schedule K-1.

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