Taxpayer sells real estate, and takes back a first mortgage. Buyer then\ndefaults,and the taxpayer takes back the real estate via foreclosure.\n\nWhat are the tax implications of:\n\n1. taking back a first mortgage. I believe the sale is complete and stands\non its own, and the mortgage is treated as a separate transaction.\n\n2. recovering the property via foreclosure. I believe this is a new\nacquisition, with the basis being the unpaid principal on the mortgage plus\nwhatever legal and transactional costs that are incurred to accomplish the\nforeclosure.\n\nIs this correct? any other thoughts?