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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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if i sold my home on contract for deed and the buyer defaulted

Customer Question

if i sold my home on contract for deed and the buyer defaulted on the contract and did not pay the real estate taxes, did not repair damage etc. We took them to small claims court and got a $10,000 judgement against them can i deduct this amount on my taxes. if so where or what form? Unable to collect the debt for over 1 year now.
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax advise with over 15 years of experience.
If you mean the judgement amount, unfortunately no. The income was never in your taxable income so it cannot be subtracted out.
The IRS generally treats a contract for deed as a sale, which means the buyer has the tax benefits of ownership. Thus, the payments of interest that are made by the buyer in possession are deductible as “mortgage interest,” even though the buyer does not have legal title to the property. A contract for deed seller must report the transaction as an installment sale on form IRS Form 6252. Once sold, the seller cannot claim depreciation or any other tax benefits of the property. If the buyer defaults on the contract and the seller exercises his legal option to reclaim the property, the tax code treats the transaction as a foreclosure.

Robin D. :

If you repossess your property after making an installment sale, you must figure the following amounts.

  • Your gain (or loss) on the repossession.

  • Your basis in the repossessed property.

Robin D. :

You would want to make sure you are familiar with this by looking to IRS publication 537 under repossessions
http://www.irs.gov/publications/p537/ar02.html#en_US_2012_publink1000221736

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Robin D. :

Hello

Robin D. :
Did you need to add any more info?

Robin D. :

If you are having difficulty in responding I can switch to Regular Q&A

Robin D. :
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Robin D. says:
Robin D. :

Responding lets me know you were able to view the entire post

Robin D. :

I will go ahead and change then to Q&A and perhaps that will assist you in responding.

Expert:  Robin D. replied 9 months ago.
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