Is seller finance tax deductible?

Question

Hi Guys,

If I buy a deal with seller finance can I deduct the interest payments as I would with a standard mortgage?

I know you should not count this phantom income and I will not factor this in to anything. Just wondered if it is a deduction?

Look forward to your replies

Nick

Nick Lee · Answer

Hi Rob,

Thanks again for your input. I was talking about me buying from a seller who owns a property outright and paying over x amount of years and an agreed percentage rate

Nick

Nick Lee · Answer

Thanks Steve

Steve Vaughan · Answer

(Assuming this isn't a $9,000 house or something)

With seller-financed deals, I like to use a contract servicer.  We have a great community bank that holds all the original docs, drafts the payments from my acct to the seller's and does the tax reporting for us with a real 1098-INT.  It costs $85 to set-up (and hold the docs) and $5 or $7/mo.  I would ask local banks in your area to see if they do this!  If not, just make sure you and the seller report the EXACT SAME AMOUNT of interest every year and you'll be fine.

Nick Lee · Answer

Thanks Bill I see your point.

Rob Beland · Answer

I may have misunderstood your question. I took your post to mean you bought a property and the seller holds the mortgage so you pay him mortgage interest. Are you talking about a situation where you are receiving interest income from somebody else?

Bill Gulley · Answer

Nick, that is guru chatter, best not to use such terms or look at deals using guru philosophy as it's usually incorrect, it's sizzle fill in stuff.  Learning from gurus often contradicts proper applications of accepted practice, especially in finance and accounting.

You should certainly look at your after tax earnings, ROI, or yields. Consider taxation on every deal, it's part of doing business.

I see your point as to the cherry on the top,  but since taxes are part of every transaction they don't just appear at a future date, they accrue over that period of time making tax consequences part of the analysis from day one. Taxes are a real expense, thinking of paying less and any savings as an income just isn't correct, like saying gas prices went down, so expense will be less therefore I made more money. A penny saved is a penny earned is really about not having to make more to save the same amount, purchasing power, the net effect, it really isn't earning but saving. :)

Nick Lee · Answer

Thanks guys.

Rob - phantom income is a term I have heard used by Robert Kiyosaki.  It's what he calls an extra source of income from a deal.

Anything I get as a tax rebate ie interest on a loan is an extra return on a deal.  He calls this 'phantom income' a cherry on the top. But you should not base deals on this type of income return.  It's just a sweetener

Nick

Bill Gulley · Answer

If it is your residence, mortgage interest is deductible regardless of the lender, if  you itemize your returns.  If it is a business held property, it is not "deductible" it is a business expense that reduces your taxable income. The interest must be paid in either case. There is no income to it. :)

Rob Beland · Answer

Yes. All mortgage interest is dedictible. What do you mean by phantom income @Nick Lee?