How do I enter interest income from a privately held mortgage (parent to child; recorded)?

Basically, since you're reporting the sale of real estate, one of the questions you'll be asked is if the sale is seller financed. Indicate that it is seller financed, and follow the prompts from there. Note also that it's expected you have a formally written and signed loan agreement also. Otherwise, if this loan is defaulted on (and most seller financed loans are) you will have one heck of a time dealing with that on your taxes - not to mention the foreclosure process.

 

Per  IRS Publication 550 Investment Income  Interest on seller-financed mortgage.   If an individual buys his or her home from you in a sale that you finance, you must report the amount of interest received on Schedule B (Form 1040A or 1040), line 1. Include on line 1 the buyer's name, address, and SSN. If you do not, you may have to pay a $50 penalty. The buyer may have to pay a $50 penalty if he or she does not give you this information.

You must also give your name, address, and SSN (or employer identification number) to the buyer. If you do not, you may have to pay a $50 penalty.

To enter seller financed interest income:

·         Type interest income - seller financed and click search/find.

·         Click on Jump to interest income - seller financed.

·         Continue with the onscreen questions.