1099-INT from Loan Servicing Company from Owner Financed Home

[sgtjamay]

We did an owner finance on a home with an outstanding mortgage.

We hired a loan servicing company to handle all the payments from the buyers and the payments to the mortgage company.
The loan servicing company sent us a 1099-INT with the full amount of interest the buyers paid, which was $12,756.57. We only received a total of $2,320.92 in interest income for the year, while the mortgage company received the remaining $10,435.65; how do I report this correctly to show we did not receive $12,756.57 in interest income for the year on this property?

Note: The loan servicing company also sends the buyers a 1098, showing the entire $12,756.57 in interest paid, which I do understand that did in fact pay that in interest.

[rjs]

You did receive $12,756.57 of interest, and you have to report that amount as interest income. You used $10,435.65 of the interest that you received to make the payments on your mortgage. The buyer did not make your mortgage payments. The buyer paid you. It's the same as if you took $10,435.65 from your salary to make your mortgage payments. You would still have to pay tax on the full salary that you received.