Question of tax impact on private lender

[Jeremy Pace]

My question is this:

I know that on a loan is taxed as income.  If I'm buying a house (free and clear) from the owner, how is the principal portion of that payment treated (for tax/income purposes) for the LENDER.  I'm not interested in how it impacts the borrower, thanks in advance.

[Bill Gulley]

The total price is divided as a % of your basis and gain, as principal is received that which is a gain is taxed, that which is your basis is not, the interest is then interest income. :)