According to Internal Revenue Service Publication 936, the interest you pay on a land contract is tax deductible, just like the interest you pay on a traditional mortgage or deed of trust with a bank. As such, you can deduct it the same way that you deduct regular mortgage interest -- by including it with your other itemized deductions on the Schedule A form. Land contract interest is also subject to the IRS's home mortgage interest deduction limitation, so only the interest on the first $1 million of land contract debt will be deductible.
Get your contract holder's taxpayer identification number so that you can enter it on your Schedule A. One easy way to do this is to give him a W-9 form to fill out and return to you.
Calculate the total amount of interest you paid on the land contract during the tax year. If you do not have this information, your contract holder should be able to provide it to you since he will need to report the exact same amount as income on his tax return.
Enter the interest you paid on line 11. To the left of it, enter your contract holder's name, address and taxpayer identification number.
Complete the rest of Schedule A and attach it to your tax return.
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