Form 4797: Sales of Business Property

What Is Form 4797: Sales of Business Property?

Form 4797 (Sales of Business Property) is a tax form distributed by the Internal Revenue Service (IRS). It is used to report gains made from the sale or exchange of business property, including (but not limited to) property used to generate rental income, and property used for industrial, agricultural, or extractive resources.

When filling out Form 4797, entities must provide the following information:

Who Can File Form 4797: Sales of Business Property?

Business property that is reported on Form 4797 may include property that is purchased in order to produce rental income. Taxpayers may also report a home that was used as a business on Form 4797. Gains made from the sale of oil, gas, geothermal, or mineral properties are also reported on Form 4797.

If a piece of property was used partially for business purposes, or to produce income — while also serving as a primary residence — gains from the sale of that property may be eligible for tax exclusion. This is typically the case for self-employed persons and independent contractors who generate their income from home.

The net profit or loss from the transfer or sale of the business property is determined by subtracting the cost basis, or purchase price, from the sum of the sales price minus any depreciation costs.

How to File Form 4797: Sales of Business Property

Form 4797 has four parts. In general, most depreciable property held for more than a year is recognized under Part I: Sales or Exchanges of Property Used in a Trade or Business and Involuntary Conversions From Other Than Casualty or Theft.

Property held for a year or less and sold for a loss is recorded in Part II: Ordinary Gains and Losses. Capital assets held for more than a year and sold for a profit fall in the section labeled Part III: Gain From Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255.

For a corporation or partnership, the total amount entered on Line 17, Part II, must be added to the gross income line on Schedule C. Part IV is labeled Recapture Amounts Under Sections 179 and 280F(b)(2): When Business Use Drops to 50% or Less.

When a business, such as a flow-through entity — like a partnership or an S Corporation — sells a property, partners and shareholders may experience a tax event (either a gain or a loss) when the property is sold and a Form 4797 is filed.

The disposition of capital assets not reported on Schedule D must be reported on Form 4797, which can be downloaded.