# Analysis Of Rick And Sheri 's Tax File

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To : Rick and Sheri’s Tax File
From : Suraiya Akther
Date : October 14, 2014
Subject: Tax treatment of reacquired property in 2013 and tax treatment of resale of that property in 2014.
ISSUES:
For 2013 Tax year
1. What are the realized and recognized gains or losses resulting from repossession of the property in 2013?
2. What is the character of recognized gain or loss?
3. What is the correct basis of reacquired property?
For 2014 Tax year
1. What are the realized and recognized gains or losses from resale of the property in 2014?
2. What is the character of recognized gain or loss?
FACTS:
Taxpayer Rick and Sheri are married taxpayers who file joint income tax returns. They built a house in St. Charles, IL in 1987 for a total cost of
- 500,000
= recognized gain on sale \$ 155,000 installment sale receipts \$ 175,000 \$ 100,000 \$ 100,000 \$ 100,000 \$ 100,000 x gross profit percentage x 15.897% x 15.897% x 15.897% x 15.897% x 15.897%
= recognized gain this year \$ 27,820 \$ 15,897 \$ 15,897 \$ 15,897 \$ 15,897

Buyers experienced financial difficulties and failed to make the October 2012 payment. On April 12, 2013, Rick and Sheri reacquired the St. Charles house. Fortunately they were able to sell the house [again] on June 21, 2014 for \$683,000. This time, they did not finance the sale themselves - the buyer brought a cashier’s check to the closing.
CONCLUSIONS:
For 2013 tax year
1. Rick and Sheri realized total gain in 2013 was \$483592 and this amount was their recognized gain as well.
2. Character of the gain is long term capital gain.
3. The basis of their property was \$820002 in 2013
For 2014 tax year
1. The amount that Rich and Sheri have realized and recognized is \$ 363000.
2. Character of the gain is long term capital gain.
DISCUSSIONS:
For 2013 Tax year
Per Section 1038(a) (1)(2) and Reg §1.1038-1.(a) (3), seller can reacquire of the property because of indebtedness arouse from previous sale. Rich and Sheri reacquired the title of their house by this section code. § 1038(a) (1) (2) also implies that there will be no gain or loss from