When you repossess your property after making an installment sale, you must figure the following amounts.
1.Your gain (or loss) on the repossession.
2.Your basis in the repossessed property.
Basis in installment obligation. Your basis is figured on the obligation's full face value or its FMV at the time of the original sale, whichever you used to figure your gain or loss in the year of sale. From this amount, subtract all payments of principal you have received on the obligation. The result is your basis in the installment obligation. If only part of the obligation is discharged by the repossession, figure your basis in only that part
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.
The IRS has a worksheet to help as a template.
Worksheet D. Taxable Gain on Repossession of Real Property
http://www.irs.gov/publications/p537/ar02.html#en_US_2016_publink1000221736
