If you received any payments from the First Sale, report it as usual on Form 6252.
Your Basis in property (land) is $4,570 (assuming you didn't have any other improvements).
You sold it for $23,500 and received $8885 in payments.
For the prior years, you should have been reporting 19.45% of the payments as non-taxable ($4570 divided by $23,500).
That means that of the $8885 you received, $1728 was non-taxable, and $7157 was taxable.
The $1728 now becomes taxable. Well, actually it's $1728 *MINUS* any Repossession Costs (see link for details).
https://www.irs.gov/publications/p537/ar02.html#en_US_2015_publink1000221753I would enter it in the section where you enter a Stock Sale, or as a Second Home, and call it "Repossession of Real Property". Sale price $1728 (minus any repossession costs), Basis $0. Or you could base it on actual amounts, using Sale Price of $8885 and basis of $7157. It really doesn't matter much.
That now returns your house to the pre-sale Basis of $4,570.
Take that $4,570 and add your $15,000 remodel, and that is the basis for the Second Sale.
Sell the second house using those numbers. You can probably just enter "Installment Sale" in the "Find" search box and it will bring you there.
