Reference

Seller financing and rent collection, defined

Plain definitions of the terms that come up when you carry a note or collect rent yourself in Puerto Rico. Each one is the answer we would give a customer, not a dictionary entry.

Seller financing

Seller financing· Owner financing
Seller financing is a property sale in which the seller, not a bank, lends the buyer the purchase price. The buyer takes the deed and pays the seller in monthly installments of principal and interest under a promissory note. The seller becomes the lender for the life of the note.
Promissory note· Pagaré
A promissory note is the written promise to repay a loan: it fixes the amount, the interest rate, the payment schedule and what happens if a payment is missed. In a seller-financed sale it is the document that makes the debt enforceable, separate from the deed that transfers the property.
Amortization schedule
An amortization schedule is the month-by-month table of a loan: for each payment it shows how much goes to interest, how much reduces the principal, and the balance left afterward. It is what lets a lender answer "how much of this year's payments was interest" without recomputing the loan by hand.
Principal and interest
Principal is the money still owed on the loan; interest is the charge for having borrowed it. Every ordinary payment splits between the two, and the split changes each month: early payments are mostly interest, later ones mostly principal. Only the interest portion is income to the lender.
Balloon payment
A balloon payment is a single large payment that settles the remaining balance at the end of a loan whose monthly payments were calculated over a longer term. A note amortized over thirty years but due in five leaves most of the principal outstanding on the balloon date.
Extra principal payment
An extra principal payment is money paid above the scheduled amount and applied directly to the balance, not to the next month's interest. It shortens the loan and reduces total interest, and it forces the remaining schedule to be recalculated from the new balance.
Payoff quote
A payoff quote is the exact amount that closes a loan on a given date: the outstanding principal plus interest accrued to that day, and any fees owed. It is good only through the date it names, because interest keeps accruing after it.
Installment sale
An installment sale is a sale in which the seller receives at least one payment after the tax year of the sale. For federal purposes the gain is generally recognized as payments come in rather than all at once, which is what Form 6252 computes. IRS: Publication 537, Installment Sales →
Applicable Federal Rate (AFR)
The Applicable Federal Rate is the minimum interest rate the IRS publishes each month for private loans. A loan carrying a rate below the AFR can be treated as having imputed interest, which matters most in family sales. Check the current rate before setting one. IRS: Applicable Federal Rates (AFR) →
Loan servicing
Loan servicing is the regulated business of administering someone else's loan: taking payments in the servicer's name, holding escrow, and handling default on behalf of the note holder. Tracking your own note is not loan servicing, and tools built for one are not built for the other.

Tax forms and agencies

Form 480.7A
Form 480.7A is the Puerto Rico informative return for mortgage interest received, filed with Hacienda and delivered to the borrower so they can claim the interest they paid. Whether an individual lender must file depends on the facts of the loan; confirm yours with a CPA licensed in Puerto Rico. Departamento de Hacienda de Puerto Rico: Departamento de Hacienda (forms and filing) →
Form 1098
Form 1098 is the IRS mortgage interest statement: the lender reports interest received on a loan secured by real property and gives the borrower a copy. The filing requirement applies to interest received in the course of a trade or business, so a one-off seller-financer is often not required to file. Read the instructions before assuming either way. IRS: Instructions for Form 1098 (who must file) →
Form 6252
Form 6252 reports installment sale income on a federal return. It computes the gross profit ratio so each year's payments are split correctly between taxable gain and return of basis, and it is filed for every year of the installment sale. IRS: About Form 6252, Installment Sale Income →
Form 8594
Form 8594 is the asset acquisition statement filed when a business is sold as a group of assets. Buyer and seller each allocate the price across asset classes, and the two filings are expected to agree. IRS: About Form 8594, Asset Acquisition Statement →
Act 132-2010
Act 132-2010 exempts residential rental income in Puerto Rico from Puerto Rico income tax, an exemption later extended through 2040. The landlord still files a return and declares the rent as exempt income, and short-term rentals do not qualify. It does not affect federal tax, CRIM property tax, or municipal obligations. LexJuris: Act 132-2010, Real Property Market Stimulus Act →
Hacienda
Hacienda is the Puerto Rico Department of the Treasury, the agency that collects income tax and receives informative returns such as Form 480.7A. It is the Puerto Rico counterpart to the IRS, not a substitute for it: a lender in Puerto Rico can have obligations to both. Departamento de Hacienda de Puerto Rico: Departamento de Hacienda (forms and filing) →

Rentals

CRIM
CRIM is the Centro de Recaudación de Ingresos Municipales, the Puerto Rico agency that assesses and collects property tax. Property tax is separate from income tax, so an exempt rental income does not mean an exempt property. CRIM: Centro de Recaudación de Ingresos Municipales →
Late fee
A late fee is the charge added when a payment arrives after the grace period agreed in the lease or note. It is enforceable only to the extent the contract sets it out and the law allows, so the amount and the trigger belong in writing before the first month.
Grace period
A grace period is the number of days after the due date during which a payment is still treated as on time. It is a term of the contract, not a legal default, and it is what determines when a late fee may be assessed.
Security deposit
A security deposit is money held by the landlord during the lease against unpaid rent or damage beyond normal wear. It remains the tenant's money: what may be withheld, and when it must be returned, should be written into the lease.
Utility pass-through
A utility pass-through is billing the tenant for a utility the landlord pays first, such as LUMA electricity or AAA water, at cost and on the next invoice. It only works cleanly when the lease says which utilities are passed through and how they are measured.
Co-owner distribution
A co-owner distribution is the share of collected rent paid onward to each person who owns part of the property. The split is agreed in advance as a percentage, and each co-owner reports their own share.

Payments

ATH Móvil
ATH Móvil is the mobile payment network used across Puerto Rico, run by Evertec. Person-to-person transfers between personal accounts carry no fee; the Business tier is a separate product with its own terms. Every transfer sends an email confirmation, which is what makes it trackable.
ACH transfer
An ACH transfer moves money directly between US bank accounts over the Automated Clearing House network. It is slower to settle than a card, typically a few business days, and much cheaper, which is why it is the rail for recurring rent and loan payments. Stripe: ACH Direct Debit payments →
Autopay
Autopay is a standing authorization from the payer to charge their bank account on each due date. The payer links the account once; enrollment by hand-typed routing and account numbers has to clear a microdeposit check first, which takes a day or two.

Definitions are general information, not legal or tax advice. Blog →