Computing the Taxable Gain on Repossessions
There are specific rules taxpayers need to follow in order to calculate the taxable gain on repossessions.
The amount taxed on repossession is the smaller of:
-
The gain realized on the repossession. This equals:
Down payment
+ Principal payments made by the buyer on the note
+ Principal payments made by buyer on seller’s loan “assumed”
- Gain already reported
- OR -
2. The gain recognized (no loss is recognized). This equals:
Gain on the sale
- Gain already reported
- Costs of repossession