Owner / Seller financing question - What tax forms do I need to file for mortgage payments?

You're actually dealing with two separate tax issues here: reporting the sale itself and then reporting the ongoing interest income from the mortgage payments. For the sale, you'd report this on Form 8949 and Schedule D of your tax return. The fact that you're financing it doesn't change how you report the actual sale. You may qualify for the capital gains exclusion ($250,000 for single filers, $500,000 for married filing jointly) if this was your primary residence for 2 of the last 5 years. For the ongoing mortgage payments, you're right about Form 1098, but that's actually what financial institutions send to borrowers. As the lender, you'll need to report the interest you receive as income on Schedule B. You should send the borrower a Form 1098 showing how much interest they paid (which they can deduct if they itemize). You should also create a proper amortization schedule to track principal vs. interest for each payment, as only the interest portion is taxable income to you.

I was in the same situation last year selling my vacation cabin. I spent hours trying to figure out all the forms until I found https://taxr.ai which was literally a lifesaver! I uploaded my seller financing agreement and it identified exactly which forms I needed to file. The tool recognized I needed to track the interest vs principal portions separately since only the interest is considered taxable income. It also helped me understand when to send the 1098 to my buyer (by January 31) and confirmed I needed to file Form 1099-INT if interest exceeds $600. The most helpful part was breaking down how to report the installment sale on Form 6252, which I didn't even know about! That form is crucial for seller financing transactions.

Just wanted to follow up - I tried https://taxr.ai after seeing the recommendation here and it was exactly what I needed! I was completely lost with my seller financing situation, especially figuring out how to report the sale correctly. The system identified Form 6252 for my installment sale, which I didn't know about, and guided me through calculating my gross profit percentage. It also explained that I'll be paying taxes on the gain gradually as I receive payments, not all upfront. The amortization schedule it created was perfect - each payment clearly broken down between interest (which is ordinary income) and principal (which is partly return of basis and partly capital gain). This would have taken me hours to figure out on my own!

If you're having trouble getting answers from the IRS about seller financing forms, try https://claimyr.com - it got me through to an IRS agent in under 15 minutes when I had questions about my owner financing situation. You can see how it works at https://youtu.be/_kiP6q8DX5c I called for weeks trying to clarify some questions about Form 6252 and how to report seller financing on my taxes, but kept getting the "high call volume" message and disconnects. The service bypassed all that and got me connected to someone who actually knew about installment sales reporting. The agent I spoke with confirmed I needed to issue Form 1098 to my buyer and report the interest on Schedule B. They also explained how to handle partial payments and late payments in my reporting.

I have to eat my words. After my skeptical comment, I decided to try Claimyr out of desperation (still waiting on a refund from 2021). Got connected to an IRS agent in about 25 minutes yesterday afternoon. The agent was able to resolve my issue and even provided some guidance on my seller financing situation since I mentioned it. For anyone doing owner financing, the agent confirmed you need Form 6252 for the installment sale reporting, and you should be issuing Form 1098 to your buyer if they paid more than $600 in interest. They also mentioned keeping detailed records of all payments received with a clear breakdown of principal vs. interest. What surprised me was learning that if the buyer pays property taxes on your behalf, that can affect your reporting too. Definitely worth the call to get personalized guidance.

One form nobody's mentioned yet is Form 6252 (Installment Sale Income). Since you're not receiving the full sale price upfront, you'll need to file this with your tax return for the year of sale and each subsequent year you receive payments. Also, if you have a large gain that doesn't qualify for exclusion, be aware of the "depreciation recapture" rules if you ever rented the property. That portion is taxed at 25% rather than capital gains rates.

Has anyone used TurboTax for reporting seller financing? I'm wondering if it handles Form 6252 correctly or if I should just go to a CPA this year.

Great thread! I'm also going through seller financing for the first time. One thing I learned from my accountant that might help - make sure you're keeping detailed records of ALL the closing costs and expenses related to the sale, not just the payments you receive. Things like title insurance, attorney fees, recording fees, etc. can all be added to your basis, which reduces your taxable gain. Also, if you're paying any ongoing expenses like property management fees or collection costs, those might be deductible against the interest income you're reporting. Another heads up - if your buyer ever defaults and you have to foreclose, that creates a whole different set of tax implications. The IRS treats it as a separate sale transaction, so you'd need to report any additional gain or loss at that point. Hopefully it doesn't come to that, but it's worth understanding upfront. Has anyone dealt with state tax requirements for seller financing? I'm in California and trying to figure out if there are additional state forms beyond the federal ones.