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Lev
Lev, Tax Advisor
Category: Tax
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Sold property on an installment agreement and had to

Customer Question

sold property on an installment agreement and had to foreclose. looking for info on what to do next.
JA: Thanks. Can you give me any more details about your issue?
Customer: Reported to IRS as installment sale. Had to foreclose. do I just stop reporting to installment sale?
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Submitted: 8 months ago.
Category: Tax
Expert:  Lev replied 8 months ago.

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

https://www.irs.gov/pub/irs-pdf/p537.pdf

You would need to prepare both worksheets and keep for your records.

Customer: replied 8 months ago.
5 years ago I sold a business property with $56,000 on an installment sale. My basis was approx. $28000. up thru TY2014 I have reported $9500 of the gain. In 2015 I was forced to foreclose and take back the property. It is my understanding I simply stop reporting the original installment sale. Is that correct? But I am also told I need to report "taxable gain on reposition" on form 4797? I'm losing my shirt, how do I have a gain? And what is my basis in the repo'ed property? Current FMV has significantly dropped below the city assessment. What if my ex-wife (and once again co-owner of the bldg.) buys me out? would that limit my loss? I am over this piece of junk!
Expert:  Lev replied 8 months ago.

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.