Holding note - do you get tax advantages

3 Replies

Hello BP community,

I am selling some properties to spend a-little more time w family and get ready for my next big move. I was thinking of taking advantage of compound interest. I never heard or saw anything about tax advantages or disadvantages of holding note or paper on properties that you are selling.  

Can anyone share real life experience, was it beneficial or a bad idea.  Please share your experience or stories with hold note on a property 

Interest is regular income, so no tax advantage. Best to hold them in a self directed IRA. If you are selling with owner financing, that approach can help you spread the gain out over multiple years, so there can be advantage there.

@Eric Hrlbock

As mentioned it’s ordinary income and there is no depreciation like holding real estate. Some people do get confused as the interest is only taxable not the principal (up to your original basis)

Technically if you purchase a non-performing note at a substantial discount to the upb then part of your principal income could be considered taxable gain. Of course consult with your own tax professional for and opinion.