who gets the tax deduction under land contract? The buyer, the seller, or both? Or can they divide it?

Question

I'm a realtor, and I have a client with an existing mortgage who's selling on land contract. My client's mortgage is fixed at 5.375 and they're charging the buyer 8.5% on a 30-year amortized three year baloon. The buyer thinks they should be able to deduct their interest, but somehow the idea that both can deduct the interest doesn't sound like something that would fly with the IRS. Anybody with experience in something like this? Thanx.

Answer 1

Your client, since he is actually paying on the note, is entitled to the interest deduction for the note. However, he must report as income the interest he receives from the buyer. The buyer is entitled to claim that amount as 'interest paid on seller-financed mortgage'.

Any property tax deduction would belong to the person that actually pays the taxes, most likely the seller.

Answer 2

I was wondering much the same question