Posted by lesgee on August 15, 2002 at 01:18:40:
Tom: I am going to purchase a $10,000 note payable @ 7% monthly for 120 months for $7000. Not bad as is, as it gives me a return of approx 16%. I have contacted the payor and lo and behold, he has agreed to double his payments if I cut his interest rate in half. This will jump my return to over 23%. I pretty well know my tax implications, but what about the payor?
Les replies: very interesting. I would guess that your interest is taxable on your sch B. However, your interest and the payor interest would be DIFFERENT.
Everyone’s interest should be what you get or pay.
Remember that the seller of the note, sold at a loss.
So that is why the interest will not match up. Very interesting. Be interested what your cpa says.
Tom: Is there an interest rate that the IRS will impute an interest if the IRS does not like the one charged?
Les: I don’t believe you have an imputed problem. If anything you are getting lots. Imputed occurs when the interest is too low like 1%, not 7%. Hey, just noticed you wrote 7% monthly!? What the heck terminology is that. I might have your whole problem wrong. I initially read it as 7%, with monthly payments. What is the interest on the note in the eyes of the payor?