When would a seller who repossesses property have a bad debt deduction?

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Expert Solution

In case of repossessing a property by the seller the seller would be allowed to have a bad debt deductions provided the following conditions are present in the sale and repossessing transactions:

At the time of sale of the property the seller had reported the gain in the books of accounts completely, i.e. deducting the tax basis of the property from the sale price of the property.
The market value of the property over and above the original tax basis of the property at the time of repossess is less than the amount of gain recognized by the seller, i.e. the FMV of the repossessed property less the original tax basis of the property.
The amount receivable from the sale of such transaction and yet not received is higher than the difference between the FMV of the repossessed property less the original tax basis of the property.

Thus, provided all the above conditions are present at the time of repossessing the property by the seller then the seller will be able to claim bad debt deductions for such sale and repossessing transaction.

ekkarill92 answered 1 year ago

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