Form 4797 Instructions

IRS Form 4797, Sales of Business Property, is used to report gains, losses, and recapture amounts resulting from the sale or exchange of business-use property. This includes real estate, machinery, vehicles, and even intangible assets like mineral rights or certain types of leases. It also captures involuntary conversions (like those from natural disasters), installment sales, and like-kind exchanges. Whether you’re an individual, partnership, S corporation, or estate/trust, you’ll use Form 4797 to classify your transaction as either a capital gain or an ordinary gain/loss and determine how it impacts your tax return. The form also includes calculations for depreciation recapture under Sections 1245, 1250, 1252, 1254, and 1255, as well as adjustments under Section 179. Filing this correctly helps avoid penalties, ensures accurate income recognition, and satisfies IRS compliance requirements for all business-related property sales.

How to File Form 4797?

Attach the completed Form 4797 to your federal income tax return (Form 1040, 1120, 1065, etc.). If you’re filing electronically, include this form in your tax software package. Be prepared to also submit supporting forms like 4684 (for casualty losses), 6252 (installment sales), and 8824 (like-kind exchanges), depending on your answers on Form 4797.

How to Complete Form 4797?

Line 1a: Enter gross proceeds from Forms 1099-B or 1099-S that are also included on line 2, 10, or 20.
Line 1b: Enter total gain from partial dispositions of MACRS assets reported on lines 2, 10, and 24.
Line 1c: Enter total loss from partial dispositions of MACRS assets reported on lines 2 and 10.

Line 2: Enter property details sold or exchanged (description, acquisition date, sale date, price, depreciation, cost, and gain/loss).
Line 3: Enter gain from Form 4684, line 39, for involuntary conversions other than casualty or theft.
Line 4: Enter Section 1231 gain from Form 6252, line 26 or 37 (installment sales).
Line 5: Enter Section 1231 gain or loss from Form 8824 (like-kind exchanges).
Line 6: Enter gain from line 32 (Part III) not related to casualty/theft.
Line 7: Combine lines 2 through 6 and enter the result—this is your total gain or loss.

Line 8: Enter nonrecaptured net Section 1231 losses from prior years.
Line 9: Subtract line 8 from line 7—this adjusts gain treatment for previous losses.

Part II Ordinary Gains and Losses

Line 10: Enter ordinary gains and losses not listed on lines 11–16 (including property held 1 year or less).
Line 11: Enter loss from line 7 if applicable—only if it’s a negative number.
Line 12: Enter gain from line 7 or amount from line 8 if applicable.
Line 13: Enter gain from line 31 (from recapture of depreciation in Part III).
Line 14: Enter net gain or loss from Form 4684, lines 31 and 38a.
Line 15: Enter ordinary gain from Form 6252, line 25 or 36 (installment sales).
Line 16: Enter ordinary gain or loss from Form 8824 (like-kind exchanges).
Line 17: Combine lines 10 through 16 to get total ordinary gain or loss.

Line 18a: If you’re an individual and line 11 includes a casualty loss (from Form 4684, line 35, col. b(ii)), enter that amount here for Schedule A.
Line 18b: Redetermine line 17 without the loss from 18a and enter here—also report it on Schedule 1 (Form 1040), Part I, line 4.

Part III Gain From Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255

Line 19: For each property (up to four): enter description, acquisition date, and sale date for Sections 1245, 1250, 1252, 1254, and 1255 property.
Line 20: Enter the gross sales price for each property.
Line 21: Enter cost or basis plus selling expenses.
Line 22: Enter total depreciation or depletion allowed or allowable.
Line 23: Subtract line 22 from line 21 to get adjusted basis.
Line 24: Subtract line 23 from line 20 to get total gain for each property.

Line 25a: For Section 1245 property, enter depreciation from line 22.
Line 25b: Enter the smaller of line 24 or 25a—this is your depreciation recapture (taxed as ordinary income).

Line 26a: For Section 1250 property, enter additional depreciation after 1975.
Line 26b: Multiply applicable percentage by the smaller of line 24 or 26a.
Line 26c: Subtract line 26a from line 24 to isolate capital gain.
Line 26d: Enter additional depreciation from 1969–1975.
Line 26e: Enter smaller of 26c or 26d.
Line 26f: Corporations only—enter Section 291 amount.
Line 26g: Add lines 26b, 26e, and 26f to get total ordinary recapture for 1250 property.

Line 27a: For Section 1252 property (farmland), enter soil, water, and land clearing expenses.
Line 27b: Multiply line 27a by the applicable percentage.
Line 27c: Enter the smaller of line 24 or 27b (recapture of Section 1252 expenses).

Line 28a: For Section 1254 property, enter intangible drilling, mining, and depletion costs.
Line 28b: Enter the smaller of line 24 or 28a (recapture of those expenses).

Line 29a: For Section 1255 property, enter the percentage of previously excluded payments under Section 126.
Line 29b: Enter the smaller of line 24 or 29a.

Line 30: Add line 24 across all properties (A–D) to get total gains.
Line 31: Add lines 25b, 26g, 27c, 28b, and 29b for all properties—also report on line 13.
Line 32: Subtract line 31 from line 30. Report casualty portion on Form 4684, line 33; the rest on Form 4797, line 6.

Part IV Recapture Amounts Under Sections 179 and 280F(b)(2) When Business Use Drops to 50% or Less

Line 33: For Section 179/280F(b)(2) recapture, enter total prior-year depreciation or Section 179 deduction claimed.
Line 34: Enter recomputed depreciation (what you would’ve claimed if not for Section 179 or business use drop).
Line 35: Subtract line 34 from line 33—this is the recapture amount (must be added to income).