Resell Personal residence

[TaxmannEA]

My 2 remaining brain cells are on a break, so i need a bit of support here. A client sold their personal residence on contract 5 years ago. The gain was excluded at that time. Buyer walks away from the house and it was repossessed by the client in 2015. Client sells again in a regular sale soon after. Is the gain on the re-sale still subject to the exclusion on sale of a personal residence or do I need to re-figure the basis and report as gain for 2015? The home was never rented out.  Too late in the season. I just can't get my head around this.

[BulldogTom]

I don't think they meet the requirements - owned and lived in as personal residence for 2 of the last 5 years.  They did not own it, the buyer did.  They only owned the mortgage paper.  When they repossessed, they owned it again, but it was not their personal residence.

You need to figure the basis and report the gain.

Tom
Newark, cA

[jklcpa]

Tom is correct with his answer above, and your client was lucky to have sold it within the 1-year time frame required under code sec 1038(e).  If he hadn't, that would have triggered some of the original gain that was excluded to be recognized on top of the gain he'll now have to compute.

This doesn't apply to the OP's scenario, but if anyone is interested, here is a good article from the Journal of Accountancy explaining how gain recognition is triggered if the repossessed property isn't resold within the 1 year time frame.

http://www.journalofaccountancy.com/issues/2014/aug/gain-exclusion-property.html

[grmy2h]

1 hour ago, jklcpa said:

This doesn't apply to the OP's scenario, but if anyone is interested, here is a good article from the Journal of Accountancy explaining how gain recognition is triggered if the repossessed property isn't resold within the 1 year time frame.

http://www.journalofaccountancy.com/issues/2014/aug/gain-exclusion-property.html

Thanks Judy, I think this may apply to MY return next year. 

[Max W]

" do I need to re-figure the basis and report as gain for 2015? "

Yes. Sec 121 can only be applied on a resale for one year after the original sale.

I believe, you can include in the basis the tax paid on any income received from the original sale.