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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.
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.
See page 13 - Worksheet D. Taxable Gain on Repossession of Real Property.
and page 14 - Worksheet E. Basis of Repossessed Real Property
You would need to prepare both worksheets and keep for your records.
It is my understanding I simply stop reporting the original installment sale. Is that correct?Yes - that is correct - but that is not enough. But I am also told I need to report "taxable gain on repossession " on form 4797?First of all - you need to prepare a worksheet and determine if you have any gain on repossession or you might realize a loss. After that - you will determine what exactly to report.I'm losing my shirt, how do I have a gain? And what is my basis in the repo'ed property?As mentioned above - you need to prepare both worksheets and keep for your records. First worksheet is to calculate your gain or loss and second - to determine your basis on repossessed property.
If that is NOT a real property - there are different worksheets to use - see the same publication.