Repossession in same year

[Gretel]

Well, I feel bad for not visiting the board recently but I will be back soon.

Client sold truck on installment basis and repossessed in same year. Got $5,500 and truck back. I couldn't find anything in pubs for same year. I am inclined to report this a short term gain on schedule D (minus interest for schedule B) but I may be totally off.

I surely don't want to report this on his schedule C as other income. Please help.

[Bird Legs]

Repossession

Gabriel, you might try CFS Taxtools. They have all kinds of calculators, worksheets
built into that program.
Now that I have been promoted from Junior to Regular Member, what is my reward?
When I went from PFC to Corporal, way back when, I got a second stripe to wear, plus
a $15.00 a month raise.
tweet...

[Unregistered]

??

Did this have anything to do with a business??? If personal was there a gain? If business no installment provision available for truck and 1245 recapture.... You would be put back in the same position as if you did not sell..... If personal who ever sells a truck at a gain-unless collector... If made money it would be interest and S/T sounds good to me..??

[Gretel]

Repossession

Thanks.

Bird Legs: Congrats, I hope I will be able to get my stripes soon. I don't have CFS and I am not planning on getting it. So, I will have to find my answer somewhere.

Guest: Yes, it's a business and besides being a truck driver he buys old trucks and sells them again for a much higher price.

Anyone else has any suggestion?

[JG EA]

Try a repossession statement

Try a repossession statement. Even though its in the same year it might give you a clue as to how to proceed.
1. Gross profit percentage on original sale
2. Balance due at time of repossession
3. Unrealized profit Line 1 times line 2.
4. Basis of unrealized amount Line 2 minus line 3
5. FMV of property repossessed
6. Gain line 5 minus line 4 or
7 Loss
8 Repossession costs
9. Reportable gain on repossession Line 6 less line 8 or loss line 7 minus line 8

Your basis in the repossessed property is its FMV at the time of repossession.
Give some numbers and we can see what would happen.

Since a sale actually took place, I think you would have to recapture 1245 in the gain on a 4797 like normal. How about reporting it as a sale then reporting the repossession, That seems off the top of my head to be a clean neat way of reporting.

[Snaggletooth]

No Schedule D

Gabriele, if this truck was involved in a business, it had to be either:

1) Inventory, or
2) Depreciable Equipment

If Inventory, then the "Sales" line takes the proceeds, and the cost of the
truck goes into "Cost of Sales" for Schedule C, 1120, 1120S, etc.

If Depreciable Equipment, this is reported as a Section 1245 transaction on the
4797. At the point of sale, all prior depreciation is recaptured as income on the
4797 and this flows directly to the 1040 (or equivalent) as ordinary income.

This is not a Schedule D transaction, except if your selling price exceeds your
purchase price, Schedule D will get a flow-through from the 4797.

As recaptured depreciation is immediate income, you don't have the option of
deferring this. Thus if you RESELL the item, this amount of reported income becomes
an addition to your basis on the next sale to the extent you never received any money for this on the original sale.

I hate transactions like this, and I can almost smell this coming down the road when a client tells me he's going to bear the note. Always ends up being a buyer who the banks and finance companies have given up on, and told "no."

[Gretel]

Repossession

Thank you so much JG and Ron. Of course, both of you are right. I hate these transactions too. He actually sold 3 trucks on installment basis and repossessed 2 of them in the same year, didn't receive any payments yet in 2005 for third truck.

Well, I have to pull everything out of his nose. He said he leased his trucks but it turned out it's actually a sale. With lots of gains. Until all these transaction showed up I believed he just has a bunch of old trucks so he can alternate since none of them is very reliable. I didn't even think of inventory until you mentioned it, Ron.

I didn't want to go through with that mess and I know my client will be upset with his tax bill. Thanks for straighten me out. My client will need to talk to me about his plans a little earlier.

I assume I have a new asset after the repossession on which I also could take Sec.179 depreciation, right?

[Snaggletooth]

No Section 179

Don't think so Gabriele. Section 179 is for assets purchased for cash.

You do have a new asset, though, and its basis is really convoluted. It should include the carrying value of unclaimed revenue plus if you had to report depreciation recapture this should go into revenue as well.