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Is it possible to deduct a loss on Form 4797 in TurboTax Self Employed when the gain is from a prior year?

Sold a rental property in an installment sale, elected to report the entire gain at the time. 5 years later, I repossessed the property, then sold it outright in 2021.
2 Replies

Is it possible to deduct a loss on Form 4797 in TurboTax Self Employed when the gain is from a prior year?

if real property is sold under the installment method and later repossessed, the seller must recognize gain to the extent that the amount received before the repo exceeds the gain already reported as income (IRC 1038) the repossession gain is limited to the initial gain on the sale reduced by the gain already reported as income and any repossession costs.

 

put another way say gross profit is $80,000 and gross profit is 30% 

you receive $100,000 before repo. you've reported $30,000 of profit in previous years 

you would have a repo gain of $50,000

 

the basis in the repossessed property equals the adjusted basis of the debt at the time of repossession plus any repossession gain recognized, plus any repossession costs. the repossession gain retains the same character as the profit from the original sale 

so if the sales price of the repo'd property is less than the adjusted basis you get to take the loss. the sale should flow to form 4797 part 1

 

 

example

1) sales price $200,000

2) gross profit % 40 (basis $120,000)

3)  payments received before default $10,000

4) gross profit reported $4,000

5) excess payments received over gain reported (line 3- line 4)  $6,000

6) gross profit on sale $200,000 - $120,000 = $80,000

7) prior gains reported line 4 = $4,000

😎 repo costs $5,000 

9) total 8 + 9 = $9,000

10 line 6 less line 9 = $71,000

11) taxable gain lesser of 5 or 10 $6,000

12) unpaid balance $200,000 - $10000 = $190,000

13 less unrealized profit $190,000 X 40% = $76,000

14) basis on date of repo $120,000 -$6, 000 = $114,000

15) taxable gain $6,000

16) repo costs $5,000

17 basis lines 14+15+16 = $125,000

 

gain reported before repo $4,000

taxable gain on repo $10,000 - 4000 = $6000

 

original basis $120,000

principal recovered $10,000- 4000= 6000

preliminary basis $120,000 - 6000 = $114,000

principal recovered that must be reported as gain $6,000

repoo coats $5000

thus total basis = $125,000 

 

 

another example

1) $200

2) $140

3) $150

4) $45

5) $105

6) $60

7) $45

😎 0

9) $45

10) $15

11) $15

12) $50

13) $15

14) $35

15) $15

16) 0

17 $50

Is it possible to deduct a loss on Form 4797 in TurboTax Self Employed when the gain is from a prior year?

I understand, but how do I get that entered into TurboTax Self Employed version.

 

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