TAX ON FIRST POSITION COMMERCIAL MORTGAGES

Barry Kornfeld

INTRODUCTION A seasoned financial advisor, Barry M. Kornfeld co-owns First Financial Tax

Group with his wife Ferne. Barry Kornfeld’s firm specializes in first position commercial mortgages (FPCMs) that provides a simpler and safer fixed-income instrument with monthly interest payments at 6 percent APY for one year. 

The monthly interest payments a lender receives from an FPCM is considered interest income and taxed in the year it was received. It is typically taxed as ordinary interest income, but one should always consult with their own tax advisor regarding their own situation. When the 1-year FPCM (loan) is paid off, or matured, the principal returned to the lender is not taxed. 

In the case where the interest earned is deposited in a conventional IRA or other qualified plan, the interest can grow tax-deferred, as tax will only become due when a withdrawal is made from the IRA. If the FPCM is held in a Roth IRA, the client does not have to pay taxes on the interest when money is withdrawn.