How is income from private lending taxed? How does REPS impact this?

[Cliff T.]

Hi all,

Can anyone provide some guidance on how income from private lending is typically taxed? My understanding is that if I'm NOT considered in the business of loaning money, then the income is considered interest income and taxed at my marginal tax rate for both federal and state. However, if I do more loans and are considered "in the business of loaning money", then the income would be taxed as business income (ie. ordinary income).

Related to the above, if I qualify for REPS, could the income from private lending be theoretically canceled out if I have losses from other RE projects, rental properties, etc?