Free repossession (deferred payment) calculator
Enter payments received, adjusted basis, and repossession costs — this repossession (deferred payment) calculator computes recognized gain under IRC §453B, updated live, as you type.
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No prepayment penalty assumed. Contact your lender to confirm extra payments apply to principal.
Results are estimates. Consult a professional.
How the repossession deferred-payment calculator works
A deferred-payment sale is a sale of property where the seller receives an installment obligation but the buyer was expected to pay in full in the year of sale — meaning the seller did not elect installment-sale reporting. If the buyer later defaults and the seller repossesses the property, IRC §453B governs how much gain the seller must recognize. This calculator quantifies that gain and the new cost basis the seller carries into the repossessed property.
The key rule: gain is recognized only to the extent that payments already received exceed your adjusted basis in the property plus repossession costs. If you received less than your basis (plus costs), the gain is zero — you cannot recognize a loss on a deferred-payment repossession under §453B. The new basis in the repossessed property resets to its fair market value (FMV) on the repossession date, not to your original basis.
IRS — Publication 537, Installment Sales; IRC §453B, Gain or Loss on Disposition of Installment Obligations.Worked example: property sold $100k, partial payments, then repossession
A seller sold property for $100,000 on a deferred-payment basis. The seller's adjusted basis was $60,000. The buyer paid $80,000 before defaulting. The seller spent $5,000 in repossession costs (legal fees, court filing, property reconditioning). The property's FMV at the repossession date is $85,000.
Recognized gain scenarios — $100k sale, $60k adjusted basis, $5k repo costs
The table below holds the sale price at $100,000, the adjusted basis at $60,000, and repossession costs at $5,000. Only the amount received before default changes. This illustrates how gain emerges only once payments clear the basis-plus-costs threshold.
| Payments received | Basis + repo costs | Gain calculation | Recognized gain |
|---|---|---|---|
| $30,000 | $65,000 | max(0, $30k − $65k) | $0 |
| $50,000 | $65,000 | max(0, $50k − $65k) | $0 |
| $65,000 | $65,000 | max(0, $65k − $65k) | $0 |
| $80,000 | $65,000 | max(0, $80k − $65k) | $15,000 |
| $95,000 | $65,000 | max(0, $95k − $65k) | $30,000 |
Source: IRC §453B; IRS Publication 537. New basis always equals FMV at repossession date regardless of recognized gain.
Tips for deferred-payment repossessions
Deferred-payment repossessions are relatively rare but can produce unexpected tax bills — particularly when the seller received substantial payments before the buyer defaulted. Understanding the mechanics in advance helps avoid surprises at filing time.
- Document every repossession cost. Legal fees, court costs, storage, reconditioning, and re-listing expenses all reduce recognized gain. Keep receipts for each item and segregate them from normal operating expenses.
- Get a formal FMV appraisal at repossession. The new basis equals FMV on the repossession date, and the IRS can challenge unsupported values. A dated, signed appraisal from a qualified appraiser is your best protection on audit.
- Identify the year of repossession correctly. Gain is recognized in the tax year you actually take back possession of the property — not the year the buyer defaults, and not the year the court grants judgment.
- Distinguish from an installment sale. If the original sale was reported on the installment method (Form 6252), different rules apply under IRC §453B. Confirm which regime governs your original sale before applying this calculator's formula.
- State taxes may differ. Some states do not conform to federal deferred-payment repossession rules. Check your state's treatment, especially for real property, before assuming the federal gain figure matches your state return.
Accuracy and limitations
This calculator applies the gain recognition formula under IRC §453B as published in IRS Publication 537 for deferred-payment sales (non-installment-method obligations). It correctly computes gain as the excess of payments received over adjusted basis plus repossession costs, floored at zero, and identifies FMV as the new basis. It does not model depreciation recapture under §1245 or §1250, which can convert a portion of the gain from capital to ordinary income, nor does it address the Net Investment Income Tax (3.8%) that may apply to the recognized gain.
Not tax or legal advice. Deferred-payment and installment-sale repossession rules involve complex federal and state tax law, depreciation recapture, basis-tracking requirements, and transactional documentation. Tax treatment depends on facts specific to your transaction. Always consult a licensed CPA or tax attorney before filing or structuring a repossession transaction. This tool is educational only and does not substitute for professional advice.
Deferred-payment repossession terms defined
About this repossession deferred-payment calculator
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