Tax implication for a RTO down payment.

[Scott Littlefield]

I have a lease agreement with the option to purchase on a house I own outright. The lessee paid me $3500 downpayment and is paying $516 a month. He has an option to purchase by the Spring of 2022 for $59,000 minus the $3500 downpayment and the principal paid throughout the span payments. Will I be expected to count the $3,500 as rental income? It would come off the principal of the house and would not be subject to capital gains as I lived in the property for about 4 years before doing the RTO deal. So I wouldn't pay income taxes on it if it was the whole lump sum of the 59k. So do I need to pay income taxes on it as it will come off the final amount owed?