IRS Form 4797 | Sales of Business Property

Form 4797 is an IRS form used to report the sale of business property. It is also used in the event of Involuntary Conversions or Recapture under Sections 179 and 280F(b)(2) of the tax code. Under current rules, it may not be necessary to pay tax on a gain from an involuntary or compulsory conversion of property.

How to Fill-out

Start filling out Form 4797 by filling in your name, and either your employer identification number (EIN) or your social security number, as appropriate, on the top of the form. Then on Line 1, enter the sum of the gross proceeds from the sales of any business properties. This amount will later be captured in Parts I, II and III of Form 4797.

Part 1 is for business properties held for one year or more. It is not meant to include property held for the ultimate purpose of sale to a customer or for copyrights.

List all such properties sold or exchanged during the calendar year on the extended Line 2 of Part I of form 4797. The form will guide you as to how to compute the gain or loss of each. After recording other gains or losses on lines 3 through 6, supply the total on Line 7. Then you will factor in non-recaptured net section 1231 losses from any prior year(s) to calculate your total gains or losses on Line 9.

Part II of Form 4797 is where you compute ordinary gains or losses for property held for less than one year. It is completed in a manner similar to how you completed part I. Among the types of losses to be recorded here are losses from a qualifying abandonment of business or investment property.

Part III is for reporting any gains you enjoyed from selling any property under sections 1245, 1250, 1252, 1254, and/or 1255. On the extended Line 19, describe each property, and then enter the day it was acquired and the day it was sold. On line 20, list the gross sale price for each property, and then on lines 21 and 22, list the cost and then the depreciation, respectively. On Line 23, enter the adjusted basis by subtracting Line 22 from Line 21. Then on Line 24, enter the total gain for each property.

Lines 25, 26, 27, 28 and 29 are for specific calculations for sections 1245, 1250, 1252, 1254, and/or 1255, respectively. Lines 30 through 32 are for a summary of all Part III gains.

Finally, Part IV of Form 4797 is for recapturing amounts under Sections 179 and 280F(b)(2) when the business use drops to 50% or less.

Form 4797 cannot be prepared in an entirely top down manner. There are many numbers derived in the latter sections of the form that will provide input to sections occurring earlier.