Discussion:Bankruptcy, Repossessed Prop., Recapture
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Discussion Forum Index --> Tax Questions --> Bankruptcy, Repossessed Prop., Recapture
| 5 March 2006 | |
| I have a client who filed Chapter 13 bankruptcy in 2005. They owned a motorhome/trailer which they used as a residential rental. The bank repossessed the "home" and sold it for less than the amount owed. The difference in the sale proceeds and the loan amount were discharged in the bankruptcy. I have not dealt with this issue before. Is there a recapture of depreciation? How is it reported on the tax return. Note: this the first return I've prepared for this client.
1998 Purchased Motorhome for $62,000 2001 Started depreciating motorhome using $53500 as depreciable basis (25SL according to client) 2005 Bank repossessed motorhome and sold for $21,780 and showed balance due on loan of $72,071 2005 Deficiency of $54,144 discharged in bankruptcy Depreciation taken from 2001 through 2004 = $26,808 Any help or direction would be appreciated | |
| 5 March 2006 | |
| Generally you would recognized gain on full amount of gain and recapture rules would apply. However, in a BK situation an exclusion under IRC Sec. 108 could apply. Check that out. Good luck. | |
| 5 March 2006 | |
| The discharge and the cancellation of debt income are two separate issues.
The taxpayer effectively sold the motorhome for $21,780 and his basis was $26,692, generating a loss of $4,912. The cancellation of debt income of $54,144 should be excludible under Sec. 108. Complete Form 982 and attach it to the 2005 return. The COD income should be reduced by any accrued interest included in the principal balance. | |
