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id503
February 25, 2021
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inherited a seller financed mortgage for a house

  • February 25, 2021
  • 1 reply
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I live in CA and inherited a seller financed mortgage for a house that is located in OR. I receive $600 a month from the buyer which includes principle and interest. Am I taxed on the full amount or only the interest? Also, where do I enter the information in TurboTax Home & Business? Do I need to file state taxes in CA and OR? I have not received a 1099-INT or any other forms.

    Best answer by JoannaB2

    It depends.  If your live and work in California, you have to file Form CA540 as resident,  You may have to file a non-resident Oregon return on your interest income, if your income was over the Orgeon Department of Revenue filing requirement.  The interest paid and/or received on a seller-financed loan on an Installment Sale must be included on your income tax return.  If you're the seller, report the interest on Schedule B, and the buyer reports the interest as mortgage interest on Schedule A, if enough to claimed itemized deductions.

     

    Here's how to enter seller-financed loan interest income on Schedule B:. 

    1. Log In to Turbo Tax,
    2. Under Income and Expenses tab, scroll all the way 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 on the question above, it will take you to Seller-Financed screen.
    5. Under Seller-Financed screen, enter the buyer's name, address, SSN of the buyer, and the amount  of interest buyer paid to you.
    6. The amount of interest will be transferred over to Schedule B of 1040 form.

    1 reply

    J
    JoannaB2Answer
    February 25, 2021

    It depends.  If your live and work in California, you have to file Form CA540 as resident,  You may have to file a non-resident Oregon return on your interest income, if your income was over the Orgeon Department of Revenue filing requirement.  The interest paid and/or received on a seller-financed loan on an Installment Sale must be included on your income tax return.  If you're the seller, report the interest on Schedule B, and the buyer reports the interest as mortgage interest on Schedule A, if enough to claimed itemized deductions.

     

    Here's how to enter seller-financed loan interest income on Schedule B:. 

    1. Log In to Turbo Tax,
    2. Under Income and Expenses tab, scroll all the way 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 on the question above, it will take you to Seller-Financed screen.
    5. Under Seller-Financed screen, enter the buyer's name, address, SSN of the buyer, and the amount  of interest buyer paid to you.
    6. The amount of interest will be transferred over to Schedule B of 1040 form.
      I
      id503Author
      February 25, 2021

      I want to make sure I understand correctly.

      1. Am I now considered the seller because I inherited the note?

      2. Are there any other forms (Fed or State) I need to fill out, i.e. indicating the inheritance?

      3. Sounds like I only need to pay tax on the interest portion of the monthly payments? Can you confirm I don't need to pay tax on the principal?

      ColeenD3
      ColeenD3
      February 27, 2021

      1) Yes, you are the seller.

      2) Not per se. You may be asked how you came to own the property, at which time you can indicate it.

      3) You only pay tax on the interest. You should have an amortization schedule that indicates how much is interest and how much is principal.

       

      Amortization Schedule

       

       

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