Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
×
Take Your Forum Experience
to the Next Level
Create a free account and join over 3 million investors sharing
their journeys and helping each other succeed.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
Already a member?  Login here
Private Lending & Conventional Mortgage Advice
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated 11 months ago on . Most recent reply

User Stats

24
Posts
12
Votes
Eric Lunsford
12
Votes |
24
Posts

Tax implications for a private lender

Eric Lunsford
Posted

I apologize if this has been answered before. I did a brief search and didn't find anything that answered my question. 

I'm wondering how private lenders get taxed on their earned interest as they loan money to RE investors. My strategy for REI has been to build a portfolio directly purchasing and leasing real estate but at some point start to transition my funds into private lending others' opportunities and getting away from being the actual owner and manager of properties.

I know there are a lot of tax benefits and write offs associated with owning real estate that would be lost as a private lender, but can anyone tell me what to expect? If I lend money as a first lien holder and get interest payments only (no profit on the back end, etc.)? I also know this is dependent to the states as well, but generally speaking I'm curious on a federal level. 

Thanks in advance. 

Most Popular Reply

User Stats

8,153
Posts
3,695
Votes
Basit Siddiqi
  • Accountant
  • New York, NY
3,695
Votes |
8,153
Posts
Basit Siddiqi
  • Accountant
  • New York, NY
Replied

@Eric Lunsford

It really depends on if you are in the business of lending.

If you are not considered in the business of lending - the income is considered interest income and taxed at your marginal tax rate for both federal and state. You are not entitled to business deductions. You may potentially be entitled to some itemized deductions.

If you are considered in the business of lending - the income is considered business income and also taxed at your marginal tax rates for both federal and state. There may be potential self-employment taxes. You may be entitled to taking deductions used to generate your income.

business profile image
Basit Siddiqi CPA
4.9 stars
78 Reviews

Loading replies...