Land contract (giving it back)

[ILLMAS]

I have these questions on a property that is in a land contract, interest only financed and $300K outstanding mortgage, TP is considering returning the property since he has not been able to resell it.

1. How do you dispose of a property (in a land contract) that is being depreciated?

2. Since there is not going to be any money exchange, will the basis of the property be $300 - 25K for depreciation = $275K and the agreement is $300K, does the TP have a gain of $25K?

Thanks

MAS

[kcjenkins]

Marco, he does have a gain, if he's taken depreciation and paid nothing on the principle, and now the seller agrees to cancel the entire debt. Pub 544 has good examples.