Repossession of Real Property Worksheet

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This tax worksheet determines in separate parts the taxable gain on repossession of real property sold on the installment method and the basis of the repossessed property.

The rules for figuring these amounts depend on the kind of property the taxpayer repossess. The rules for repossessions of personal property differ from those for real property. Special rules may apply if the taxpayer repossesses property that was their main home before the sale.

The repossession rules apply whether or not title to the property was ever transferred to the buyer. It does not matter how the taxpayer repossess the property, whether the taxpayer forecloses or the buyer voluntarily surrenders the property. However, it is not repossession if the buyer puts the property up for sale and the taxpayer repurchases it.

For the repossession rules to apply, the repossession must at least partially discharge (satisfy) the buyer's installment obligation to the taxpayer. The discharged obligation must be secured by the property the taxpayer repossesses. This requirement is met if the property is auctioned off after foreclose and the taxpayer applies the installment obligation to the bid price at the auction.

Note: The installment method used for the taxable gain uses the special rules of IRC Section 1038.

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