Tax advice for private money’s lenders

[Doug Henderson]

Borrowed private money to do several deals this year. Paid them all back their principal plus the agreed upon interest. For tax purposes what should I be doing to report. Do I need to issue them 1099’s showing the amount of interest paid to them? And would origination fees be included in this amount. Thanks

[Eamonn McElroy]

Disagree with the previous two responses.

OP should issue a 1099-INT to the lender if he paid $600 or more in interest to the lender in the ordinary course of a trade or business during the tax year.  In the borrowed capital was used in an activity that is a mere investment, or is personal in nature, a 1099-INT obligation won't exist.

A Form 1098 obligation is only triggered if the loan is a mortgage and the interest is received in the ordinary course of trade or business of the lender from an individual or sole proprietor taxpayer.  There is no evidence in this thread that the private money was secured by the real estate.  Further, there is no evidence that the interest was received by the lender in the ordinary course of lender's trade or business.  Further, we don't know how the OP is organized for federal income tax purposes.

Thus, the conclusion that the lender has a 1098 obligation is premature.  There's a strong possibility there isn't any obligation here.  Also, it is not relevant to the OP as this obligation would fall on the lender and not OP (the lendee), so we're all just really wasting our breath.

Interest shouldn't be hard to find out.  An amortization schedule should be attached to any good loan agreement and signed off on by both parties.