Private Lending - tax implications

[Patrick McGarry]

I am loaning money to a company that buys, remodels, and sells homes. I am wanting to structure the deals so that my lender profits are capital gains as opposed to interest. Have I been successful?

For example, I loaned $100K. The borrower signed a promissory note and gave me the first mortgage. When the borrower sold the property 15 months later, it returned my principal amount plus a percentage of its net profit. Is my lender profit a long-term capital gain?

In another case, all the facts are the same, except the borrower returned my principal amount plus a percentage of that principal amount -- similar to interest. Is my lender profit a long-term capital gain?

Note: What happened in the second case is that the promissory note said that the borrower had to pay either a percentage of its net profit or a minimum return ( = principal amount x 12% x number of years) -- whichever was greater.

Thank you for your assistance.