Tax Benefits to Purchase Money Mortgage

[Brandon Sturgill]

What are the real tax benefits to the seller when transacting via purchase money mortgage...I can see if the property is not a primary being taxed at capital gains for the sale...but what happens when the seller files taxes at the end of the year...how do they report income from holding a mortgage?...and what tax rate would they pay?...

[Matt Wills]

Brandon -

Wayne is correct.. What you are looking for is something called an Installment Sale..  Generally, money received is taxed at the following rates:

Recapture of depreciation (recovery of depreciation taken in prior years up to total gain realized or depreciation taken whichever is less) - Ordinary

Interest Received - Ordinary

Principal Received - Prorated, a portion will not be taxable and depending on your holding period - Short Term - Ordinary, Long Term - Capital Gains