Purchase payments equals cost basis. If the annuitant dies early no more payments are owed. No income tax deduction for the buyer on the interest paid, it is added to the cost basis. No security interest is allowed to be retained by seller. Unless the agreement calls for a term certain period that may be no longer then the life expectancy of the seller.
Interest is deductible in the year it is paid as a business expense.
The seller may have a lien in the property to see that the contract is honored. If the seller dies before full payment is made the rest of the note is forgiven. A set time period for the payments and a finite price. If the seller dies before completion of the payments, the seller s estate owes capital gains taxes on the remaining capital portion of the note the year the seller dies. When dealing with a SCIN you have to remember a few points.