sale of reposessed installment sale rental property and purchase of another rental

[Mustak1]

I had to foreclose on a rental house that I previously sold to someone as an installment sale. Once I got the property bac, I immediately sold it and then used the proceeds to purchase another rental. How do I report this in TurboTax 2016 and can I report it as a like kind exchange?

[Critter]

Well I highly suggest you seek professional assistance if you are not comfortable with the steps you need to take ... but first you will need to recompute the new basis of the property and then the 1031 exchange has to be done using a third party facilitator.  

[Carl]

can I report it as a like kind exchange?

I can tell you with100% certainty that you can not report it as a like-kind exchange, in IRS parlance known as a 1031 exchange. By law a 1031 exchange must be performed through a third party that is licensed for that.

As for the repo and the re-selling of it, that it two totally separate and completely unrelated transactions. I myself can not help with the repo side of things. But I do know that more information is needed before anyone else can help.

 - In what tax year did you sell the property?

 - In what tax year did you foreclose on the property?

- Did you have a legally recognized sales document that was filed with your county upon closing the sale?

- Was ownership of the property transferred from you to the buyer, with you listed as the lienholder, and *not* as an owner?

- Did you run the foreclosure through the courts?

- In the year of the sale, how did you handle the depreciation that you were required to recapture by law?

- Have you been reporing your taxable interest income each tax year since the year of the sale? Or did you report the entire sales price as income in the year you closed on the sale?

Hopefully with the additional information, someone else can jump in here and help. Overall though, you may find it in your best financial interest to seek professional help - especially if your state taxes personal income because you have to report this stuff on your state tax return too.

[Anonymous]

if a third party  (sometimes referred to as a qualified intermediary or exchange trustee)  did not get the proceeds directly from the sale and hold them to put down on your purchase of replacement property,  you can not do a 1031. 

put another way if you got hold of the sales proceeds a 1031 exchange is no longer permissible 

How a 1031 Exchange Works
A 1031 exchange defers taxes on the sale of a real estate investment.    (tax law changes in effect for 2018-2025 eliminated 1031 exchanges for non real property such as autos, machinery, a person's principal residence, real property held primarily for sale doesn't qualify) Investors can sell a property and reinvest their capital gains in a similar property of equal-or-greater value. It

Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if—
(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(B) such property is received after the earlier of—
(i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(ii) the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs

[Mustak1]

Thanks; Do you know if this was the rule for 2016 as well? The sale and purchase was in 2016. Wish I knew then to instruct the title company to hold the proceeds since The purchase on the new rental property was a week after the closing of the sale.

[Mustak1]

Hi Carl! Thanks for your response. I repossesed the house thrugh a foreclosure that went through court proceedings in 2016 and sold the house in 2016. I originally sold the house in 2012 to the tenant at the time through an installment sale;  the county records show him as owner from that time intil I foreclosed. After the first year he made sporadic payments that did not cover the interest due on the installment loan so I only showed interest payments only (no principal) in my tax returns from 2013 -2015. I used the proceeds from the sale to purchase another rental house within 2 weeks. 

If you can point me the forms I need to fill out I would like to take a stab at it first so I know all the info the professional will be asking me for. Thanks again!

[Mustak1]

Hi Carl, I failed to mention; the tax year I am trying to file is for 2016 taxes due.