USA Promissory Note Question

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Mar 1, 2015
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Hi,

I was hoping you can help with a question I have around a promissory note that I entered a 7 years back and wanted some feedback on how the repayment of the promissory note will be taxed:

For the ease of numbers, here is a smaller scale of what happened:


Term:
I lent 1, 000 for three years at a 8% Interest rate.


Unfortunately, the borrower could not repay the amount due to health issues he was undergoing.

Fast forward 7 years and now, the borrower has stabilized and wants to make payments

He has asked for me to forgive the interest/back interest owed and he will pay me out in equal sums of $100/ month until he pays me the full amount of my principal plus an extra 240.

If all goes well, I will eventually be paid 1,240 (1,000 principal + 240).

Now to my question:

Since I will be eventually making 24% on the initial capital how do I calculate this for tax purposes?

-Of each payment I receive of $50/ month do I account .24% or $12 to be taxable (interest income) ?

OR

-
Do I wait till I receive my original basis back (1,000) before factoring the remaining $240 to be considered taxable income?



Also, any amount received above my basis, is this 1099-INT and does this get taxed at my ordinary rates?

Thank you for the clarification.
 

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