Repossessed property

[taxonomy]

If taxpayer repossesses land sold on installment sale where taxpayer took back a note from the buyer, with 6% stated rate of interest, but no payments were ever made, TP would not have any gain upon repossession, would anyone DISagree? How is the repossession reported, to 'offset' previous 6252 sale? BTW, the annual rental value/income of land sold and repossessed is under the annual exclusion for gift tax.

[JG EA]

First do a worksheet (Pub 537 page 12 has a repossession worksheet) to figure your client's gain or loss. FMV comes into play.

The gain/loss goes on the same form as the 6252 would have flowed if there had been any principal reported - depending on if it was business or capital gain type property.

[taxonomy]

Real estate

I don't think FMV comes into play on real estate repossession, does it in some cases? The worksheet indicates zero gain - no payments ever received, but was asking in case I'm missing something. With no gain or loss, I can't figure out how to report on D in year of repossession - 0 payments on 6252, nothing flows to D. Need remedial instruction on what line to put repossession on D. I was thinking of attachment. How to get the installment sale out of IRS system?

[les grans]

My Latin is lousy...

Caveat Repossessor! The rules for repossession of real property and the rules for repossesstion of personal property are quite different. You might say they are just the opposite of each other.
The rules for real estate that's been repossessed [e.g., land, as in this thread] are in the IRC at section 1038, and I think the "worksheet" for repossessed real estate is in Pub 537 on page 13 (not page 12 - that's the one for personal property).
Bottom line, if you've collected nothing on the installment sale of real estate, there's no gain to report now when it's repossessed, and the sold-but-now-no-longer-sold property goes back to the seller at the same tax basis that it had before it was sold. The general rule for real estate is that the installment sale is "undone" when the real property is repossessed.
I am curious, however, about the OP's mention of gift tax rules and annual exclusion limits and such. Was this sale of land to a related party? There's more going on here than just a simple installment sale and repossession when the poster is already considering gift taxes and the annual fair rental value of the property... Taxonomy, wanna fill us in?

[taxonomy]

Schedule D in year of repossession

This is not related tax party. I was trying to think of the ramifications of repossession, and gift tax was one. Since property was not producing income before, income shifting doesn't seem to apply. And it's not medicaid Impoverishment. Not money laundering. I just think he's going to get this property back.

Re: basis, I think it's increased by costs of repossession, so the basis wouldn't be exactly the same.

I'm stuck on how to report this on Sch D in year of respossession to get the installment sale out of system.

[crispian123]

take advice

First do a worksheet (Pub 537 page 12 has a repossession worksheet) to figure your client's gain or loss. FMV comes into play.

The gain/loss goes on the same form as the 6252 would have flowed if there had been any principal reported - depending on if it was business or capital gain type property

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crispian

[S T]

Cfs

If you subscribe to CFS - Tax Tools they also have a worksheet that is pretty straight forward.

Sandy

[Davc]

FMV only comes into play when dealing with personal property. not real property.