I need to find info on seller reposessing rentals sold on installment. I know the portion of payments that was not taxed as return of basis is now fully taxed. I want to research it more. Can foreclosure fees be expensed?
Okay, I found the info I was looking for in Pub 537. There are worksheets to calculate the new basis (including foreclosure costs) and the gain that now has to be recognized on the interim payments.
Report repo gain on the same forms as the sale. 6252 flows to 4797 & Sch D
Your client repossessed property previously listed as installment sale? Foreclosure fees would be added to new basis in property. Basis would be original basis before sale less any amounts used to offset principal payments throughout the years of installment agreement. Principal payments not received would not be taxed. Then again maybe I got your question wrong.
Yes, client repo'd real property reported as installment sale. I am calculating gain on portion of payments already received that wasn't previously taxed.
I am calculating new basis: portion of principal balance representing original basis + gain recognized at repossession + foreclosure costs.
Thanks for your response.
Only interest and principal payments received in 2010 would go onto the 2010 tax return. All expenses of foreclosure are added to the basis and all principal payments from the sale are subtracted from the basis that existed at the time the sale contract was made.
Where would the gain on the repossession get reported? Form 4797? Pub. 537says "You report gain or loss from a repossession on the same form you used to report the original sale. If you reported the sale on Form 4797, use it to report the gain or loss on the repossession." The original sale was reported on Form 6252. Any suggestions?
The numbers from 6252 flow to another form - find that form and your quest will be accomplished.
Report gain on repossession of installment sale on 4797 & it flows to Sch D
On an installment sale, there is NO third part lender from which to receive a gain. You simply adjust the basis of the property as Taxiowa explained.
No. There are two items to be calculated: 1) gain/loss on the repossession and 2) basis in repossessed property.
Pub 537 Installment Sales has worksheets. Taxable gain at the repossession can be added to basis, but it is taxed in the year of repossession.
Previous payments were only partly taxable because a portion of principal payments was a return of investment. Now they have the property back and their investment is returned, all previously untaxed principal is now taxable.
Taxable gain on repossession and costs of repossessing are added to basis.
