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The interest you get is reported in the regular interest reporting
section (schedule A?). The only difference is that you're supposed to
put it down first in the list for some unstated reason.
If you elect to spread out the payment of the capital gains tax
as you receive the mortgage money, check out the "Installment Sale"
rules. Basically it works like this: in the year that you sell the
property, you calculate not only what the capital gains are, but also
what percentage of the total selling price is the capital gains. Lets
say the answer is this:
Total selling price: $200,000
Total capital gains: 50,000
The way the installment sale rules would look at this is that 1 in
every 4 dollars that you get in FOR PRINCIPLE is taxed as a capital
gains. Every year you'll have to remember to separate out the interest
and principle payments and put them in the following places:
Interest: 100% of it gets listed on Schedule A.
Principle: There is a form (sorry, I forget the number) that
reports installment sale info. On this form you'll put
the total amount of principle received in the year, the
capital gains vrs total selling price percentage you
calculated in the year that the property was sold,
multiply them out and the answer (the amount of the
principle that represents the taxable capital gains)
gets carried over to the capital gains form.
It sounds like a lot of paperwork, but it actually isn't. In the year
that you sell the property there is a handful or so lines that have to be
filled out to establish the percentage, but in the remaining years that
you're holding the mortgage all you need to put on the installment form
page is the previous total principle received, principle in this year,
the percentage calculated in year 1 and the multipled answer and then
carry the answer to the capital gains form.
-craig
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