Reporting Owner Financed Interest

[tg_setliff]

We sold land in 2022 and owner financed for the buyer. I am trying to determine if I have to file a 1098 to the IRS and to the buyer.  This was not part of a business and not sold to a business (not sure if any of that matters). I understand that I do have to report the interest on my taxes but for now, I just need to know if I have to provide a 1098 to the buyer and the IRS. 

I have been unable to find anything specifically related to this.  While chatting with a Live TurboTax Advisor, they did send me some documentation on reporting the Loan interest but I was unable to find anything there that covered my particular question.  In fact, one of the first paragraphs in the documentation said this (note the bold print line):

Lenders do not have to provide a Form 1098 if they received less than $600 in interest, mortgage insurance premiums, or points during the year. Additionally, interest received from a corporation, partnership, trust, estate, association, or company (other than a sole proprietor) does not require filing a Form 1098. If you bought a property with owner financing, the seller might not file a Form 1098. Regardless of why you may not have received a Form 1098, you typically can still deduct qualifying mortgage interest.

The interest paid for 2022 did exceed the $600 amount but the bold print line confuses me. Even though, this paragraph is directed to the Buyer, I am trying to understand under what circumstance would the Seller not need to file a Form 1098.  Any direction that someone may already have to answer this would be appreciated.

Thanks

TomS

[DoninGA]

If you are not a lender and not in the business of lending money for property acquisition you are not required to file a Form 1098.

[tg_setliff]

Thank you for your response.  Not doubting what you say but can you direct me towards any IRS publication that would tell me what you just said? Just so I can read what their rules are?

[DoninGA · Accepted solution]

@tg_setliff IRS Form 1098 Instructions page 2 - https://www.irs.gov/pub/irs-pdf/i1098.pdf#page=2

Who Must File
File this form if you are engaged in a trade or business and, in the course of such trade or business, you receive from an individual $600 or more of mortgage interest (or $600 or more of MIP, if section 163(h)(3)(E) applies for the reporting year) on any one mortgage during the calendar year. See the instructions for box 5, later, for MIP reporting requirements. You are not required to file this form if the interest is not received in the course of your trade or business. For example, you hold the mortgage on your former personal residence. The buyer makes mortgage payments to you. You are not required to file Form 1098.

[78752co]

I sold a commercial rental real property to the tenant and provided owner finance.  Since it is a business, the borrower expects to deduct the interest as an expense.  I received over $2000 in interest this year.  Do I need to file a 1098?  Can the borrower deduct the interest payment? 

[DianeW777]

It depends, If the rental property has been transferred to name of the buyer, and you are still in the business of commercial real estate, then you must complete and file Form 1098.  If you are no longer in the business of commercial real estate, then a form is not required to be filed.

• Who Must File File this form if you are engaged in a trade or business and, in the course of such trade or business, you receive from an individual $600 or more of mortgage interest (or $600 or more of MIP, if section 163(h)(3)(E) applies for the reporting year) on any one mortgage during the calendar year.
  • IRS Instructions Form 1098

Yes, the owner can deduct the interest payment as mortgage interest if the property is in the name of the buyer and is security for the loan should default occur. 

You should have an amortization schedule for your records so that both you and the buyer agree on the amount of interest paid/received. 

• Deducting Home Mortgage Interest FAQs

You would report the interest income under Interest and Dividends then selecting Interest from Seller-Financed Loans