Can You Deduct Payments PAID on a Principal Only Note?

[Michael Morrongiello]

Can You Deduct Payments Paid on a Principal Only Note?

Situation; Elderly Seller bought their Triplex home for around $350K Many Many Years ago. She lives in One unit and rents out the other two Units. Today its value is around $1.4M +/-   She has discovered that IF she sells for Cash she will have a significant Tax Bite on the Capital Gain at both the Federal and State Levels. She is open to doing a Seller Financed Installment sale;

EG. $1.4M Purchase Price, $200K Cash Down, Balance of $1.2M financed at $4K per month
for 300 Months (25 Years) - all PRINCIPAL payments - NO interest.

Someone told me that;
The loan principal is the amount you borrow, while the interest is the cost of borrowing the money.
Interest is an EXPENSE, and therefore it can be deducted from your taxes.
However Principal is not an expense, so it cannot be deducted in your taxes.

In this case the Property Investor / Buyer is LOOKING for some write offs that they can use to offset some of their other W-2 earned income.
Thus the ability to depreciate presumably would still be OK, and to deduct other expenses paid (taxes, Insurance, MGMT, repairs)
BUT NOT being able to deduct interest on $1.2M financed could be an issue for the BUYER

Is this TRUE ? if So, an investor buying the property albeit at a Higher PRICE would NOT be able to write off any interest?
BUT would benefit from each and every payment going towards a PRINCIPAL PAY DOWN of the DEBT DUE (presumably FASTER)

Note:  if the buyer was buying the property for cash or obtaining Bank Financing - they would NOT agree to pay $1.4M
but likely a lower property purchase price closer to $1.1M or Less.