I am trying to figure my cost basis on an inherited wrap mortgage.?

Question

When I inherited in 2000 the principal balance due was $422,735, payments were made and interest income was reported. The buyer paid me off in 2006 at $359,284, and I paid off the morgage company at $173,912. What do I report as capital gains income, what is my cost basis?

Answer 1

The only tax consequence of that mortgage was the interest you received. There is no capital gain.

There would only have been a capital gain if you had re-sold the mortgate for MORE than the outstanding balance. Since it was a debt owed to you and was paid as agreed, the only taxable income to you was the interest you received.