We're a headhunter agency that connects US businesses with elite LATAM professionals who integrate seamlessly as remote team members — aligned to US time zones, cutting overhead by 70%.
.webp)
We’ll match you with Latin American superstars who work your hours. Quality talent, no time zone troubles. Starting at $9/hour.
.webp)
If you want my team to find you amazing talent, click here
By following the step-by-step instructions in this guide, you'll clearly understand how to fill out IRS Form 4797 to report these transactions properly.
You'll learn what type of property sales must be reported on Form 4797, how to calculate any gains or losses, where to report different transactions on the form, as well as tax implications and other special rules to be aware of.
Form 4797 is used to report the sale or exchange of property used in a trade or business, for the production of income, or as rental property. This includes reporting capital gains and losses as well as recaptured depreciation, which is treated as ordinary income.
The key purpose of Form 4797 is to differentiate between capital gains/losses and ordinary income, as they are taxed at different rates. Any gains on the sale of business assets held longer than a year are long-term capital gains, taxed at lower rates compared to ordinary income. Meanwhile, recaptured depreciation and gains on assets held a year or less are taxed as ordinary income.
Properly categorizing these transactions is essential to calculate the correct amount of tax owed. Form 4797 allows you to report section 1231 transactions, sales of section 1245/1250 property, and sales of ACRS/MACRS property in the appropriate categories. It also indicates which transactions should be reported on supporting schedules such as Form 8949 and Schedule D.
Understanding the nuances of Form 4797 is key for any taxpayer selling business assets or rental property. This form helps you pay the right amount of capital gains tax while recapturing any claimed depreciation deductions. Consult the instructions carefully when preparing your return.
You report the sale or exchange of business assets on Form 4797, Sales of Business Property. Here are some key things to know about using Form 4797:
Use Form 4797 to report:
Some examples of transactions to report on Form 4797 include:
Attach your completed Form 4797 to your tax return (Form 1040). The totals carry over to Schedule D to determine capital gains and losses.
Be sure to follow the instructions for Form 4797 closely when reporting your transactions. Record the proper dates, amounts, and asset types and indicate any applicable special rules. Proper reporting on Form 4797 ensures your business asset dispositions are treated correctly on your tax return.
The sale of capital assets held for more than one year generally results in long-term capital gain or loss. When you sell real property or depreciable property used in your business and held longer than 1 year, it results in gain or loss from a section 1231 transaction.
Some key points on section 1231 transactions:
If you sell business property like equipment, furniture, buildings, or land at a gain, it will likely qualify as a section 1231 transaction. The gain would be taxed at the lower long-term capital gains rate.
However, if the property is inventory or held for sale to customers, the gain would be taxed at ordinary income tax rates instead. Also, recaptured depreciation on section 1245 property (personal tangible property) and section 1250 property (real property) results in ordinary gain tax treatment.
So in summary, selling capital assets used in business generally produces capital gain or loss if held over one year. But special rules apply in some cases, such as for inventory, property held for sale, and recaptured depreciation.
The sale of a driveway would typically be reported on Page 2, Part 3 of IRS Form 4797, "Sales of Business Property."
Specifically, you would:
So in summary, the sale of a business driveway would be reported in Part III of Form 4797, "Sales of Business Property", along with the calculation of the gain or loss. This would then flow into Schedule D to report the capital gain or loss amount from the sale.
Reporting the transaction in this manner allows proper categorization of the sale as a §1231 asset and ensures accurate calculation of gain/loss for tax purposes. The key is using Form 4797 as the mechanism to capture all the required details of the transaction.
Form 4797 is used to report the sale or exchange of property used in a trade or business, or held for the production of rents or royalties. Some examples of property that would be reported on Form 4797 include:
So in summary, Form 4797 is intended for reporting sales of business use property that cannot be classified as capital assets. This distinguishes it from capital gain/loss reporting forms like Schedule D, which covers sales of investments and personal use property. The key factor that determines if property should be reported on Form 4797 is if it was used in a trade or business or for the production of income at any time during ownership.
Individuals may need to file Form 4797 if they sold or exchanged their business, rental, or investment property at a gain or loss during the tax year. For example, if you owned a rental property for 5 years and sold it in 2022 for more than you originally paid for it, you would report that sale on Form 4797.
When you sell a rental property that you depreciated, you may have to recapture some or all of the depreciation as ordinary income, even if you sold at an overall loss. The sale of rental property should be reported in Part III of Form 4797.
Partnerships and S-corporations also use Form 4797 to report the sale or exchange of property used in their trade or business and other capital assets. This includes section 1231 transactions like sales of real estate or equipment used in business operations.
The partnership or S-corp files Form 4797 with their business tax return. The gain or loss then flows through to the partners or shareholders to report on their individual tax returns. Partners and shareholders with passive income may be subject to loss limitation rules.
The main difference between Form 4797 and Schedule D is that Schedule D is used to report capital gains and losses from the sale of capital assets held for personal investment. Form 4797 is used to report sales of assets used in your trade or business or for the production of rents and royalties.
So if you sell stocks and bonds for investment purposes, you would use Schedule D. If you sell business equipment, rental property, land, or other section 1231 property, you would use Form 4797. The totals from Form 4797 get carried over to Schedule D to determine total capital gains and losses.
The deadline to file Form 4797 is the same as your tax return deadline, which is typically April 15 for most taxpayers. However, you may qualify for an automatic 6-month extension by filing Form 4868 by the April deadline. This extends your Form 4797 deadline to October 15.
Some key points on Form 4797 filing deadlines and extensions:
Even with an extension, it is wise to file Form 4797 as early as possible once you have the necessary documentation. This allows more time for the IRS to process your return and issue any refunds. It also gives you more time to respond if the IRS has questions about your reported business property sales.
Having your documentation ready by April 15 and filing on time ensures efficient processing of Form 4797. If you cannot file on time, extensions are available, but penalties and interest will continue accumulating on any unpaid taxes after April 15.
On the top of Form 4797, provide your name, address, social security number, and other taxpayer identification details as requested. This ensures the IRS can properly match the form to your tax return.
Use Part I to report qualifying asset dispositions, including real property and depreciable personal property used in your trade or business. This includes Section 1231 transactions like sales, exchanges, involuntary conversions, and capital asset conversions.
Calculate and enter your gains and losses from these transactions in the appropriate columns based on the recovery period of the assets. Attach a statement if you need more space.
In Part II, report gains and losses not included in Part I. This includes sales of property held 1 year or less and depreciable personal property.
Use the Form 4797 calculator provided by the IRS to help compute your ordinary gains and losses for each transaction. Enter the results in the appropriate columns.
Attach a Form 8949 and other supporting statements as needed to provide additional details on each transaction.
Part III is used to report depreciation recapture on sales of certain business assets, such as Section 1245 property and Section 1250 property. This recaptured depreciation is taxed as ordinary income.
Carefully determine which section to report your transactions under based on the type of asset sold. Use Part III Section 1245 for recapture on personal property or other tangible assets that were depreciated. Use Part III Section 1250 for recapture on depreciable real property.
Report any recapture on sale of goodwill on the appropriate section line as well. The Form 4797 instructions provide guidance on how to calculate and report the recapture amount.
Attach all supplemental statements to explain your recapture calculations.
Reporting the sale of business property can involve other relevant tax forms and rules that may impact the process.
When selling business property, you may need to file additional forms along with Form 4797:
Certain special rules and exceptions may apply when reporting sales of business property:
After filing Form 4797 to report the sale of business property, you may owe additional taxes if you had a taxable gain. To calculate the tax owed:
It's important to retain documentation related to assets sold using Form 4797 for your records. This includes:
Adjust your records to reflect the sale of the property and any new cost basis for replacement property acquired.
Maintaining accurate records makes reporting any future transactions easier and ensures you have support if questions arise later on the tax treatment.
Form 4797 is used to report gains and losses from the sale or exchange of business property. Key points to remember:
Accurately categorizing and reporting gains and losses from sales of business property can be complex. Refer to IRS instructions and Publication 544 for additional guidance if needed. With proper planning and understanding of the rules, business owners can reduce their tax burden when selling business assets.
See how we can help you find a perfect match in only 20 days. Interviewing candidates is free!
