Pre-payment

Forum|Forum|6 years ago
March 8, 2020
2 replies
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We sold a rental home in 2017 and carried the 10-year loan. In 2019 the principal was paid off in a lump sum.I can't figure out how to enter this on TurboTax Premier.

NCPERSON1

why do you think the loan pre-payment has any tax impact? Someone owed you X dollars and they paid you that same amount, right? there was no gain or loss on the transaction, or was there?

Opus 17

Employee

Paying off a loan has no tax consequences good or bad. It doesn't get reported.

NCPERSON1

@Opus 17 - but in this case he held the loan; he wasn't the debtor. So if the debtor paid EXACTLY the outstanding amount , I agree, there is no tax consequence. But if the debtor paid the mortgage off at a premium (income) or discount (loss), there is a capital gain / loss situation.

Opus 17

Employee

@NCPERSON1 wrote:

@Opus 17 - but in this case he held the loan; he wasn't the debtor. So if the debtor paid EXACTLY the outstanding amount , I agree, there is no tax consequence. But if the debtor paid the mortgage off at a premium (income) or discount (loss), there is a capital gain / loss situation.

Yes I missed the this was the lender. The lender should have been reporting income from an installment sale, right? In which case they need to close that out? Or, if they were reporting the interest as income and not the principle (which should have been the case) now they report less interest since they received less. The principle is not reported as income since it should have been dealt with as a capital gain in the year the property sold.