Posted by JHyre in Ohio on March 18, 1999 at 06:05:21:
Q#1: Pay tax on full rent less any deductions (interest, etc.). Credit is an upward adjustment to basis/downward adjustment to selling price if exercise occurs.
Q#2- May have Original Issue Discoint (OID) rules apply which serve to impute interest during the term of the loan- basically taxable amortization of premium/discount. That’s what happens with most 0-coupon bonds.
Q#3- No, it’s not illegal, people do it every day. Watch out for usury laws if interest rate is too high- depends on your state.