Seller Financing Contracts

[7evin337557]

If we were to go into a seller financing mortgage contract, we were the mortgager, what would be the best way to treat the receivable of the selling price and the principal and interest received in a Partnership return?

[DawnCo]

Hi, 

Happy to help! This is a great question.

If we were to go into a seller financing mortgage contract, we were the mortgager, what would be the best way to treat the receivable of the selling price and the principal and interest received in a Partnership return?

Seller financing can be a bit tricky. 

You would report it as sale of Business property Installment sale in the Partnership return 1065. 

https://www.irs.gov/publications/p537

Installment sale.

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. This method of reporting gain is called the installment method. You can’t use the installment method to report a loss. You can choose to report all of your gain in the year of sale.

This will allow the correct gain proportion to flow to each partner according to their percentage of interest.

TurboTax Business offers several options for filing Business returns. Do it yourself, Live assisted and Full Service

https://turbotax.intuit.com/small-business-taxes/

[7evin337557]

Thank you.  So if we report the entire capital gain when sold, we do not have to report the principal amounts received after correct?

Also, how is the interest received treated?

[DawnCo]

 You generally report interest on an installment sale as ordinary income in the same manner as any other interest income. 

This IRS link has a lot of great information on FAQ etc that will be helpful to you in reporting the installment sale.