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You may not deduct the value of the note. However payments on the note might be deducted.Payments may include following items:- interest on the note - deducted in the year paid.- principal - deducted as depreciation of the rental property.- escrow payments - normally includes insurance and real estate taxes: - - insurance payments are deducted when paid out of the escrow account - - real estate taxes are deducted when paid out of the escrow account.
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