Repossession

[Earl]

Client sold some land several years ago on installment. Purchased failed to make payments in 2009 and client was forced to foreclose on the loan. Client has tried to get purchasers to move off the property (their house trailer) but has been unsuccessful and lawyer is going to court to force removal.

When should gain on the repossession be included in income 2009 or 2010? Foreclosure in 2009 but repossession in 2010.

Also if original sale was a long term sale would the repossession be considered long term.

What if the original sale was short term capital gain what would repossession be considered for capital gain purposes.

[Burke]

Make sure I understand this. Client sold property on installment basis. Therefore, he was reporting income (interest and taxable gain) each year on his tax return? Did he elect out of installment gain and report all in year of sale? (If he did that, he would have been reporting only the interest each year.) IF he was reporting taxable gain each year, then he would have nothing to report in the year repossessed other than payments he actually received. He never gave title to the property to the buyer. So, he just has the property back with an adjusted basis. What would be the "gain on repossession?"

[Lion]

Pub 525

Pub 525, the repossession section, explains this situation.

[Burke]

I was looking in Pub 537 for installment sales, and under repossession it says "for the repossession rules to apply, the repo must at least partially discharge the buyer's ...obligation to you. ...This requirement is met if the property is auctioned off after you foreclose and you apply the installment obligation to your bid price at the auction." I will review 525 too.

[Earl]

Lion

When would you include repossession gain. 2009 or wait until 2010 when the purchaser has been moved off the property.

After foreclosure the property was put up for auction at the court house but due to bad weather no one showed up so client retained the property. Now is trying to get order for sheriff to escort purchaser off property.

[JG EA]

When would you include repossession gain. 2009 or wait until 2010 when the purchaser has been moved off the property.

After foreclosure the property was put up for auction at the court house but due to bad weather no one showed up so client retained the property. Now is trying to get order for sheriff to escort purchaser off property.

If it doesn't say in the publications I would say that by definition repossession in 2010. So far he hasn't gotten anything of value back in order to establish gain/basis. What if the occupants runined everything.

This is something people need to be warned about when the sell in a buyers market economy. Installment sales can go so wrong.

[Lion]

I got nothing!

Burke and JG are giving you good advice. Don't have much to add.

[Davc]

. What if the occupants runined everything.

That doesn't matter in the case of real property. For personal property it's FMV but for real property it's the original sale price.

[Earl]

Basis in repossessed property

According to PLublication 537 on repossessions your basis in the repossessed property is essentially the same as it was on the original sale.

However, looking at the Example E for determining basis it ends up with a basis that is $4,000 less than original basis.

Can someone explain to me why the difference in what they say and what they show in t he example.