Discussion:Reacquistion of Real Property

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Discussion Forum Index --> Tax Questions --> Reacquistion of Real Property

Fred1040 (talk|edits) said:

18 February 2006
I have a client whose only income for 2005 was Social Security (he is 70+).

He had orginally sold a land parcel (no buildings) with a sellor financed loan of one payment on the principle due two years later, plus interest payments due monthly. The buyer went into bankruptcy. The buyer had not made any payments (principle or interest). The seller reaquired the property via a bid to the court that included the original loan amount, plus the interest due, plus reaquistion costs of legal, title fees and non-paid county taxes.

I have been researching Sections 453 (series), 1011, 1016, 1223 and 1038 - did I miss any?

1. The offical reaquistion date is December 2005. Does my client have to claim as income the interest of $15,000? If so, can he also claim the interest as a deduction on schedule A?

2. Does he have to claim any gain in 2005 (he never received any payments from seller after the loan was signed)?

3. What is the "new" adjusted basis he will use in 2006 when he sells the reaquired property?

Riley2 (talk|edits) said:

19 February 2006
It sounds like the client had a judicial foreclosure.

The substance of the transaction is that your client never received the $15,000 in income. This was a bookkeeping transaction.

Legal costs, title costs, and delinquent taxes should be added to his original basis.

Since, your client never received a dime from the buyer, there is no gain on repossession under Sec. 1038.

Fred1040 (talk|edits) said:

19 February 2006
Thank You Riley2.

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