Gain on Repossession

[st940692]

There are other threads that cover this topic but I cannot figure out how to actually report the gain on repossession of real estate after a cancelled installment sale.  The original sale was reported on both the Form 6252 and 4797 (fed from the 6252).  There is nowhere in the TurboTax installment sale section (that I can find) to report that the installment sale was cancelled.  It does not generate a form 4797 when I report no income on the installment sale for 2020 so I can't go into the 4797 and override it.  I filled out the IRS worksheets to calculate the taxable gain and basis of repossessed real property, I just can't figure out where or how to report the gain in TurboTax.

[PattiF]

Here is information on where to enter the gain from the repossession. It would be on the same place where you entered the original installment sale.

"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" 

[st940692]

Thank you for your answer and you have accurately described how to do this from a tax standpoint, but not how to physically enter this information into TurboTax.    "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.".  Yes this is correct, but how do you do it in TurboTax?

[KathrynG3]

To get to Form 4797 and edit it, search for sale of business property in the search box and select the Jump to link in the search results. 

Make sure to select the first checkbox at Any Other Property Sales? screen.

Then next screen, Sale of Business or Rental Property, should allow you to Edit.

To return to the installment sale section of your return, enter installment sales in the search box and select the Jump to link in the search results.

Form 6252 for Installment Sales will be available very soon; Form 4797 is available now. 

For the most recent update, check at: IRS forms availability table for TurboTax.

@st940692

[st940692]

Thank you.  Yes I can access the 4797 by going into Sale of Business or Rental Property, however there is no actual entry field for 'Gain on Repossession' so I assume you are suggesting that I put in a dummy sale with net proceeds equal to the gain and purchase and sale dates such that it is a short-term gain.  There is a 6252 in TurboTax but nowhere to identify a cancelled installment sale and resulting gain on repossession.  I'm beginning to think no one has actually done this in TurboTax.  

[DianeW777 · Accepted solution]

You are correct, there is no place on a tax return that is labeled 'Gain on Repossession'.  It is reported as though it were a sale and using your details above is the correct way to enter it.  I would advise to enter a description of the property as Repossession and you can use Various for the dates of purchase and sale, then select short term for the holding period. However, using dates that represent the short term holding period, if applicable will produce the same result.

If you did not receive any installment payments or interest from the installment sale in 2020, you can delete your Form 6252 by using the following steps.  

• Open your tax return > Use the Search box (upper right) > Type installment sales (plural) > Press enter > Select the Jump to... link
• Click the delete button or the trash can depending on your TurboTax version (Online or CD/Download).

If you did have any payment activity, you should leave the installment sale and delete it next year.

This situation is not common and does take specific actions to enter the gain on the repossession.  For information about determining the actual gain on the repossession IRS Publication 4681 will provide the details.

[st940692]

Thank you everything you described is what I ended up doing.

[Halomotel]

Hi! I am in the same predicament and filed for extension so that I have time to search on how to file the return.  I sold on contract in 2017 and buyer defaulted and I repossessed the investment property on Jan 2020. I filed  Form 4797 for 2017 and paid Kansas State capital gain tax.

Would you share how you file form 4797. Is it  consider another sale to the same buyer? Do I add the principal monthly payments without interests which were reported in past years as interest income.

[tkatsules]

• Can anyone clarify figuring the basis in an installment agreement?

Pub 537 states to multiply the unpaid balance x gross profit % and then subtract from the unpaid balance amount. This yields a very different answer from taking the obligations face value - principal payments. Thank you. 

[AbrahamT]

Are you talking about the basis from the sale of your property? That would be the 1st step in deriving your gross profit when you initially sell the property. If you look at pg.3 on that Publication 537, you would include the following Adjusted basis + Selling expenses + Depreciation recapture and deduct that from your sale of the property in the 1st year. What you are talking about is the gross profit percentage which you apply every year when you receive your yearly payments from the initial installment sale.For that, you take your annual payment less interest x your gross profit perecentage.

There is a worksheet on that same pg. 3 of the Publication to the left to help you figure your gross profit percentage inorder to figure out your installment sales income. The gross profit percentage would be entered on Line 19 of Form 6251. See HERE

[EDIT 1/25/2023 11:00 AM PST]