repo of second home

[grandmabee]

client sold 2nd home on installment sale but at a loss so not deductable. only reports interest each year.

2011 buyer quit deeded back before sale at auction for non payment of property taxes.

my client is now renting out. So I am trying to figure the basis for depreciation. all my worksheets for repossessions deal with the sale at a gain. is the new basis the original basis minus prinicpal payments received plus repo cost?

any help appreciated

[Pacun]

The basis for depreciation is adjusted basis or FMV, whichever is lower.

[grandmabee]

so do I subtract the principal payments from the first sale?

[Cathy]

Colleen,

Original (cost basis) minus the principal payments plus the repo expenses sounds right to me. Then compare the FMV and the new basis and whichever is lower is the correct basis to use for depreciation. It just might end up being the FMV as you said the installment sale generated a loss. You did say "any help appreciated". So, from one fried brain to another, good luck!

Cathy

[Pacun]

Don't forget that you have to use the lower and then deduct the land price.