Form 4797 is used to report the sale or exchange of these kinds of business property:
- Real property
- Depreciable tangible property
- Amortizable tangible property
- Oil, gas, geothermal, and mineral properties
- Section 126 property
It is also used to report these kinds of transactions:
- the involuntary conversion (other than due to theft or casualty) of property that was used in trade or business and also capital assets held for more than one year;
- disposition of capital assets that aren't on Schedule D;
- disposition of noncapital assets other than inventory;
- gain or loss for partners and S corp shareholders of section 179 property dispositions by those entities;
- computation of section 179 and section 280F(b)(2) recapture amounts when the business use of section 179 or listed property decreases to 50% or less;
- gains or losses treated as ordinary by a securities or commodities markets trader when a mark-to-market election is made under section 475(f);
To access Form 4797, from the Main Menu of the tax return (Form 1040), select:
- Income Menu
- Other Gain/Loss (4797, 8824)
- Form 4797 - Sales of Business Property
Transactions are entered under Enter/Edit 4797 Transactions. There are a few additional lines on the form, and these are accessed under the Other Data menu.
Nonrecaptured Net Sec. 1231 Losses from Prior Years - Nonrecaptured section 1231 losses are the net section 1231 losses deducted during the five preceding tax years that haven't yet been applied against net section 1231 gain to determine how much net section 1231 gain is treated as ordinary income.
Gross Proceeds from Sale of Real Estate - Enter on this line the gross proceeds reported on Form(s) 1099-B or 1099-S for the all the transactions that have been entered on the form. This includes sales of real estate as well as ordinary gains and losses reported on 1099-B if the taxpayer has made a mark-to-market election under section 475(f).
Section 179 and Section 280F(b)(2) recapture amounts when business use drops to 50% or less
For property placed in service after 1986, and for listed property placed in service in a prior year, if the business use of the property has decreased to 50% or less this year, the section 179 expense deduction and/or excess depreciation will need to be recaptured. The recapture amount is calculated separately for each property, so if there are multiple properties subject to recapture rules, the calculations will need to be shown on a statement attached to the return. All the following amounts will carry to lines 33 and 34 of Part IV of Form 4797.
- Section 179 or Depreciation Allowable in Prior Years (line 33 column (a)) - the section 179 expense deduction claimed when the property was placed in service;
- Recomputed Depreciation Under Section 179 (line 34 column (a)) - the depreciation that would have been allowable on the section 179 property from the first year through the current year;
- Section 179 or Depreciation Allowable Under Sec 280F(b)(2) (line 33 column (b)) - the amount in column (a) plus the depreciation allowable on the property in the prior tax years;
- Recomputed Depreciation Under Sec 280F(b)(2) (line 34 column (b)) - the depreciation that would have been allowable if the property hadn't been used more than 50% in a qualified business, figured from the first year through the prior year.
Note that the recapture amount on line 35 of Form 4797, calculated using the above entries, needs to be added to the basis of the property.