contract for deed land sale

[brendam3]

As the seller of land on a contract for deed, do I need to report the interest that I've received from the buyer to them?  If so, how do I do that?  1099-INT?  

[PattiF]

Yes, you need to report the interest that you received from the buyer to them. You do not need to place this on a 1099-INT or a 1098 for mortgage interest.

The interest paid and/or received from a seller-financed loan on an Installment Sale must be included on your income tax return.  If you're the seller, report the interest income on Schedule B, and the buyer reports the interest as mortgage interest on Schedule A if enough to claim itemized deductions.

NOTE: You do not have to give the buyer(s) a 1098 Mortgage form because you are not in the "business" of giving loans. 

This is a seller financed loan. You need to give them your name, address, Social Security Number, and the amount of mortgage interest they paid you. 

When the buyer prepares their income tax return, there is a section where they will answer, "The seller is financing this loan and we didn't receive a 1098'

Here's how you would enter seller-financed loan interest income on Schedule B: 

1. Log In to Turbo Tax,
2. Under Income and Expenses tab, scroll down until your get to "Interest From Seller-Financed Loan", then click edit.
3. The next screen is a question "Any seller-financed loan?".
4. If your answer is yes to the question above, it will take you to the Seller-Financed screen.
5. Under the Seller-Financed screen, enter the buyer's name, address, SSN of the buyer, and the amount of interest the buyer paid to you.
6. The interest amount will be transferred to Schedule B of the 1040 form.

[brendam3]

In 2022, we entered into a contract for deed (installment sale) for a piece of land we originally purchased in a 1031 exchange transaction back in 2006. We did not enter into another exchange transaction, we just sold the land via a contract for deed in 2022. In 2022, we received principal and interest payments under the contract, but under the terms of the contract for deed in the state of MN, the title to the property remains with us until it is fully paid, which is scheduled for 2027 unless the buyer prepays the contract.  The questions I have are:  

 - are we required to report a proportionate amount of the gain on sale in 2022?  It's not likely, but potentially the buyer could default and the property would then be returned to us.  Can we elect to wait to report the entire gain until the contract terms are fulfilled?  

 - we will have further closing costs when the contract is fulfilled, so we don't know the actual gain in 2022.  I can't factor in those costs to the gain calculation as I don't know what they are.  

I know I need to report the interest we received, I just don't know how to handle the gain piece of the transaction.  Thank you!

[DaveF1006]

Yes according to the IRS instructions, under the installment method, you include in income each year only the part of the gain you receive or are considered to have received. You don't include in income the part of the payment that's a return of your basis in the property.You cannot postpone reporting the gain when the contract terms are fulfilled.