Executory/ land contract tax question

[Sean Bramble]

I'm considering buying an STR property with a land contract (also known as an executory contract or contract for deed) with 0% interest payments … meaning each payment would be pure principal pay down. No interest expense to deduct on my taxes 

Question: how is this treated for tax purposes? Would I have to pay income taxes on principal pay down? I could imagine a scenario where taxes owed could exceed cashflow if this is the case, but that doesn’t seem right 🤔 

example:

Gross STR revenue = $100k

Annual principal only pmts = 60K

Operating expenses = 20K

Net Cashflow = 20K

do I owe taxes on only my cashflow of 20k, or do I owe on my combined cashflow + principal pay down of 80K?

[Steve Vaughan]

Quote from @Sean Bramble:

I'm considering buying an STR property with a land contract (also known as an executory contract or contract for deed) with 0% interest payments … meaning each payment would be pure principal pay down. No interest expense to deduct on my taxes 

Question: how is this treated for tax purposes? Would I have to pay income taxes on principal pay down? I could imagine a scenario where taxes owed could exceed cashflow if this is the case, but that doesn’t seem right 🤔 

example:

Gross STR revenue = $100k

Annual principal only pmts = 60K

Operating expenses = 20K

Net Cashflow = 20K

do I owe taxes on only my cashflow of 20k, or do I owe on my combined cashflow + principal pay down of 80K?

Nope- principal payments aren't taxed. 
The elephant in the room isn't taxes. It's not owning the property.
Hope your seller remains solvent and not sued so his property doesn't get a new lien against it while you're making all those principal payments.