September 7th, 2010 
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income tax schedule 2009
Where do I report income tax earned from interest on a note where the funds for the note were from a mortgage?.
We mortgaged bare land to get funds for an interest bearing note. The note provided income in 2009. Do I report it as passive real estate income on Schedule E part I? Can I write off my expenses for the mortgage, insurance and etc on the lot as necessary for the collateral for the note? If not how do I report the income and mortgage interest? I took out a line of credit for another note paying interest, how do I report that interest?
Do I report it as passive real estate income on Schedule E part I?
No, since the interest income did not come from rents or royalties. Your interest income is reported on Schedule B.
Can I write off my expenses for the mortgage, insurance and etc on the lot as necessary for the collateral for the note?
No. This is personal interest and is not deductible. Other costs for the land are not deductible, with the exception of property tax. Property tax is deductible on Schedule A under real estate tax.
If not how do I report the income and mortgage interest?
Interest income is reported on Schedule B. Mortgage interest is not deductible.
I took out a line of credit for another note paying interest, how do I report that interest?
Schedule B.
If you purchased the land as an investment, the interest on the loan taken out for the purchase could be considered investment interest. Investment interest can be deducted to the extent of investment gains which are not dividends and interest. This does not apply to you, since you mortgaged land you already owned, and the income from the proceeds of the loan do not qualify as investment gains for which you can subtract investment expenses.
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Gallatin County Video NEWS 5/16/2009
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