Tax on Note Income / Installment Sale

[Ben Gonzalez]

Hi all,

I was hoping I could get some general info about taxes from note income and how everyone here handles it.

I'm getting into creative financing, and plan to originate several notes (yes, I'm aware of Dodd-Frank/SAFE Act) and also possibly buying notes as well. I would assume they are taxed the same way.

Is note income reported as installment sale income via Form 6252?

Is note income taxed as short or long term gains?

I plan to have a Series LLC for originating notes (each one in it's own series) and depending on if it's long or short gains, will potentially affect how the Series LLC is structured.

Just to put some numbers to this, lets say I buy a home (all in) for $175k on terms from the seller. I then wrap that home to an owner finance buyer for $200k at a higher interest rate. How would the taxes work on this scenario? Would that change whether there is a balloon of 5-10 years on each side or not?

Please let me know if any additional info is needed and thanks in advance!