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.