In TaxSlayer Pro, for an asset being depreciated in the depreciation module in Schedule C, E, or F, you indicate that it has been disposed of in the asset's record by selecting the menu line Disposition. After selecting this line and entering the date of disposition, you will be asked this Yes/No question:
Carry Disposition to Form 4797?
For most sales this question is answered Yes, and after you provide the sale price and indicate which Part of Form 4797 the sale will be reported in, the module will calculate the amount of depreciation to recapture as well as the gain or loss on the sale and will make the necessary entries on Form 4797.
However, you will answer this question No when the property is being disposed in these scenarios:
- Installment sale - Report an installment sale on Form 6252 unless the taxpayer elects out of reporting it as an installment sale and instead wishes to recognize the entire gain in the year of the sale.
- Like-kind exchange - Report a like-kind exchange of real property on Form 8824.
- Casualty or theft - Report an involuntary disposition due to casualty or theft on Form 4684. Note that for tax years 2018-2025 only a casualty or theft loss attributable to a federally declared disaster can be deducted. (Involuntary disposition not due to casualty or theft is reported on Form 4797.)
- Rental property that's been a main home - Use the Sale of Main Home Worksheet to determine the capital gain exclusion, if any. See here for information about this worksheet.
When the disposition is reported on Form 4684, 6252, or 8824, or calculated on the Sale of Main Home Worksheet, the gain or loss on the disposition flows to Form 4797 from the form or worksheet, whichever is used.
When the question is answered No, you will need to determine the amount of depreciation to recapture. (See below for instructions on how to use the program to do that for you.) Knowing the amount of depreciation to recapture is important for the purpose of determining the asset's adjusted basis, and for a like-kind exchange for determining the ordinary gain or loss. It's also an important amount when selling property under the installment method, because any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
If the property being sold is real property that includes a building, irrespective of how you answer the question be sure to allocate the sales price between the land and the building so that the module can accurately calculate the amounts to report.
Determining the amount of depreciation to recapture for a disposition not reported on Form 4797
When you indicate that you wish to carry the sale to Form 4797, the module informs you of the amount of depreciation that is being recaptured. So, for a disposition not being carried to Form 4797, here's how to use the module to provide you the amount of depreciation to be recaptured:
1. When you encounter the question regarding where to carry the disposition, answer Yes as if the sale is being carried to Form 4797. (Don't worry - you'll change this answer shortly.)
2. Enter the sales price, if any, and select either Part I or II of Form 4797 (for this procedure, the Form 4797 part isn't relevant).
3. Exit the Disposition menu, then exit the Depreciation Data Entry Screen for the item. You will then be shown information about the asset: its cost, the sales price, and most importantly the amount of depreciation. Note the amount of depreciation, then select Ok.
4. In the Depreciation Module window, select the asset, then select the menu line Disposition.
5. Select Carry to Form 4797, and answer No. If it's an installment sale, verify the selling price is correct.
6. Exit the Disposition menu, then exit the Depreciation Data Entry Screen for the item.
You now know the amount of depreciation to recapture to calculate the asset's adjusted basis for the purpose of completing Form 4684, 6252, or 8824, or the Sale of Main Home Worksheet, as appropriate.