How Do I Report Owner‑Financed / Seller‑Financed Interest?

If you're involved in a seller-financed property sale, the interest portion of those payments may need to be reported on your tax return. How you report it depends on whether you're the seller receiving the interest or the buyer paying it.

Quick Answer

If you're the seller (you received interest)

Report the interest as taxable income under:

1099-INT, DIV, OID → Seller-Financed Interest Income

Even if you didn't receive a Form 1099-INT, the interest you received is generally taxable and must be reported on your return.

Keep in mind that this program does not support issuing Form 1098 to the buyer.

If you're the buyer (you paid interest)

Report the interest under:

Itemized Deductions → Mortgage Interest and Expenses → Mortgage interest not reported on Form 1098

If you qualify to deduct the interest, you'll need information about the seller, including their Social Security number (SSN) or Employer Identification Number (EIN).

What Is Owner-Financed or Seller-Financed Interest?

Owner financing, also known as seller financing, happens when the seller acts as the lender instead of a bank or mortgage company. The buyer makes payments directly to the seller under the terms of a financing agreement.
In a typical seller-financed arrangement:
  • The seller receives payments that include both principal and interest.
  • The interest portion is generally taxable income to the seller.
  • The buyer may be able to deduct the interest as mortgage interest if they meet IRS requirements and itemize deductions.

How to Report Seller-Financed Interest Income (Seller)

If you received interest from a buyer, follow these steps:
  1. Go to Federal
  2. Select Income
  3. Choose My Forms
  4. Open 1099-INT, DIV, OID
  5. Select Owner-Financed / Seller-Financed Interest Income
Enter the amount of interest you received during the tax year.

Important

You must report seller-financed interest income even if no tax form was issued to you.

How to Report Seller-Financed Mortgage Interest (Buyer)

If you paid interest to the seller, follow these steps:
  1. Go to Federal
  2. Select Deductions
  3. Choose My Forms
  4. Open Itemized Deductions
  5. Select Mortgage Interest and Expenses
When prompted:
  1. Select No when asked whether you received Form 1098.
  2. Choose Mortgage interest not reported on Form 1098.
You'll then enter:
  • The seller's name
  • The seller's SSN or EIN
  • The amount of mortgage interest you paid
If you're not sure how much of each payment was interest versus principal, review your loan agreement or amortization schedule.

Can I Deduct Seller-Financed Mortgage Interest?

Maybe. The deduction is generally available only if:
  • The loan qualifies as mortgage debt under IRS rules.
  • The property meets the requirements for deductible mortgage interest.
  • You choose to itemize deductions on Schedule A.
If your standard deduction is larger than your total itemized deductions, itemizing may not reduce your taxes.

Important Things to Know

  • Itemizing is required. You generally won't benefit from the mortgage interest deduction unless your itemized deductions exceed your standard deduction.
  • Form 1098 may not exist. Seller-financed loans often do not generate Form 1098.
  • Seller information is required. Buyers generally need the seller's SSN or EIN to claim the deduction.
  • Form 1098 cannot be issued through this program. Sellers who need to issue information returns may need to use another method or service.

Frequently Asked Question

What if I didn't receive a Form 1099-INT or Form 1098?

That's common with seller-financed transactions. Sellers must still report taxable interest income, and buyers may still be able to claim a mortgage interest deduction if they meet the IRS requirements and provide the necessary information about the seller.

By entering the transaction in the correct section of the program, you can report seller-financed interest accurately whether you're the buyer or the seller.

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