What this line means
Interest you paid on a mortgage for business property where the lender is an individual rather than a bank. This includes seller-financed mortgages, loans from private investors, and any other arrangement where a person — not a financial institution — holds the note on your business property. You must provide the lender’s name, address, and SSN or EIN on your return.
Does this apply to you?
- You purchased business property with seller financing and make monthly payments including interest
- You borrowed from a private investor to buy or improve business property
- You have a loan from a family member or friend that is secured by business property
Easy to overlook
You must report the lender’s information When you pay mortgage interest to an individual, the IRS requires you to report the lender’s name, address, and tax identification number. This is because the interest you pay is taxable income to the lender, and the IRS uses your return to verify they reported it. Failing to provide the lender’s information can result in the deduction being disallowed. 1 IRS Schedule C instructions — Line 16b
Seller-financed deals often have deductible interest If you bought a commercial space and the seller carried the note, every monthly payment includes interest that is deductible here. Unlike bank loans, seller-financed arrangements do not generate a 1098 form automatically, so you need to track the interest amount yourself or get a statement from the seller. 2 General filing pattern — missing 1098 reporting for individual lenders
Watch out for this
Deducting interest paid to an individual without including their name, address, and taxpayer identification number on your return. The IRS specifically requires this information for line 16b, and the deduction can be denied if you leave it off.
Footnotes
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IRS Schedule C (Form 1040) Instructions, Line 16b. https://www.irs.gov/instructions/i1040sc ↩
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IRS Schedule C (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩