Understanding the holding period and basis of reacquired property for tax purposes can be difficult for taxpayers.

The holding period of the property includes the time the property was held before the first sale plus the time it was held after the repossession. Holding period of improvements made by the buyer begins the day after repossession. The basis of the repossessed property is equal to the basis of the buyer’s obligation to the seller (i.e., the remaining face value less the unreported gain) PLUS the gain recognized on the repossession PLUS the costs of repossession.