This is a little bit tricky @Joseph Furmansky however if you look into what state law says in NY I'm sure you can find somewhere that it makes a comment that they're to return the place to you in the same condition less ordinary wear and tear.

“…has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business.." you should be okay.

Interest income is taxed at ordinary rates and you can subtract legitimate investment expenses whether in an entity or not.Your friend could certainly open a separate bank account and track his lending income and expenses separately in any accounting program he might use.

Generally taxed as interest income unless you are in the trade or business of lending, in which case that makes it ordinary income.

However, if I do more loans and are considered "in the business of loaning money", then the income would be taxed as business income (ie. ordinary income).Related to the above, if I qualify for REPS, could the income from private lending be theoretically canceled out if I have losses from other RE projects, rental properties, etc?

Additional off-street parking and super customizable private back patio along with front yard perfect for entertaining.

Example, bed vs patio ?

Only one you meet all three of these thresholds, may you write-off passive losses against your ordinary income.However, you will still deduct all expenses, depreciation, amortization, etc. on your Schedule E.

So my ordinary tax rate should be zero by everything I can gather.

Income from holding notes comes through as ordinary interest income.