Fill out 4797 (Sales of Business Property) online
Form 4797 reports the sale, exchange, or involuntary conversion of business property, including rental real estate, commercial buildings, and depreciable assets. It handles the complex tax treatment of Section 1231 gains and losses, depreciation recapture under Sections 1245 and 1250, and ordinary gains from certain property dispositions.
How to fill out 4797 (Sales of Business Property)
List properties sold (Part I)
For property held more than one year, enter a description, dates acquired and sold, gross sales price, depreciation allowed, cost or other basis, and gain or loss. This covers Section 1231 property.
Report ordinary gains (Part II)
Enter gains from property held one year or less, and any ordinary gains from recapture or other provisions. This section also handles gains from involuntary conversions.
Calculate depreciation recapture (Part III)
For each property, calculate the depreciation recapture amount under Section 1250 (real property) or Section 1245 (personal property). This portion of the gain is taxed as ordinary income.
Transfer totals to other forms
Section 1231 gains (net) flow to Schedule D as long-term capital gains. Ordinary gains and depreciation recapture flow to Form 1040 as ordinary income.
About 4797 (Sales of Business Property)
Who needs this form
Taxpayers who sold, exchanged, or disposed of business or investment property during the tax year. This includes owners of rental real estate, commercial property, business equipment, and other depreciable assets. It does not cover personal-use property like your primary residence.
Where to submit
File with the IRS as part of your annual federal income tax return (Form 1040 or applicable business return).
Source and content freshness
- Filing deadlines may shift for weekends and holidays. Verify due dates with official instructions.
Common mistakes to avoid
- Not recognizing that depreciation recapture is taxed as ordinary income (up to 25% for real property under Section 1250)
- Using the wrong section of the form (Part I for gains/losses on property held more than one year, Part II for ordinary gains, Part III for depreciation recapture)
- Forgetting to account for all accumulated depreciation when calculating adjusted basis
- Not looking back at prior year Section 1231 losses, which can recharacterize current year gains as ordinary income
- Confusing Form 4797 with Form 8949 (which covers capital assets like stocks and personal-use property)
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What is depreciation recapture on real estate?
When you sell rental or business real estate at a gain, the portion of the gain attributable to depreciation you claimed (or could have claimed) is "recaptured" and taxed at a rate of up to 25% under Section 1250, rather than the lower long-term capital gains rates. For example, if you bought a rental property for $200,000, claimed $50,000 in depreciation, and sold for $300,000, the $50,000 of depreciation is recaptured and taxed at up to 25%, while the remaining $100,000 gain is taxed at capital gains rates. To defer the entire gain, consider a Section 1031 like-kind exchange.
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