General Instructions

Purpose of Form

Use Form 4797 to report:

Where To Make First Entry for Certain Items 
Reported on This Form

(a) 
Type of property
(b) 
Held 1 year  
or less
(c) 
Held more 
than 1 year
1 Depreciable trade or business property:    
  a Sold or exchanged at a gain Part II Part III (1245, 1250)
  b Sold or exchanged at a loss Part II Part I
2 Depreciable residential rental property:    
  a Sold or exchanged at a gain Part II Part III (1250)
  b Sold or exchanged at a loss Part II Part I
3 Farmland held less than 10 years upon which soil, water, or land clearing expenses were deducted:    
  a Sold at a gain Part II Part III (1252)
  b Sold at a loss Part II Part I
4 All other farmland Part II Part I
5 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255)
6 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less 
than 24  
months
Held 24  
months 
or more
  a Sold at a gain Part II Part III (1245)
  b Sold at a loss Part II Part I
  c Raised cattle and horses sold at a gain Part II Part I
7 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less 
than 12 
months
Held 12  
months 
or more
  a Sold at a gain Part II Part III (1245)
  b Sold at a loss Part II Part I
  c Raised livestock sold at a gain Part II Part I

  • The sale or exchange of:

    1. Property used in your trade or business;

    2. Depreciable and amortizable property;

    3. Oil, gas, geothermal, or other mineral properties; and

    4. Section 126 property.

  • The involuntary conversion (from other than casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit.

  • The disposition of noncapital assets (other than inventory or property held primarily for sale to customers in the ordinary course of your trade or business).

  • The disposition of capital assets not reported on Schedule D.

  • The gain or loss (including any related recapture) for partners and S corporation shareholders from certain section 179 property dispositions by partnerships (other than electing large partnerships) and S corporations.

  • The computation of recapture amounts under sections 179 and 280F(b)(2) when the business use of section 179 or listed property decreases to 50% or less.

  • Gains or losses treated as ordinary gains or losses, if you are a trader in securities or commodities and made a mark-to-market election under Internal Revenue Code section 475(f).

Other Forms You May Have To File

  • Use Form 4684, Casualties and Thefts, to report involuntary conversions from casualties and thefts.

  • Use Form 6252, Installment Sale Income, to report the sale of property under the installment method.

  • Use Form 8824, Like-Kind Exchanges, to report exchanges of qualifying business or investment property for property of a like kind. For exchanges of property used in a trade or business (and other noncapital assets), enter the gain or (loss) from Form 8824, if any, on line 5 or line 16.

  • If you sold property on which you claimed investment credit, see Form 4255, Recapture of Investment Credit, to find out if you must recapture some or all of the credit.

  • Use Form 8949, Sales and Other Dispositions of Capital Assets, to report the sale or exchange of capital assets not reported on another form or schedule; gains from involuntary conversions (other than casualty or theft) of capital assets not held for business or profit; and nonbusiness bad debts.

  • Use the applicable Schedule D, Capital Gains and Losses, for the return you are filing to figure the overall gain or loss from transactions reported on Form 8949 and to report transactions you do not have to report on Form 8949. See the Instructions for Form 8949 and the instructions for the applicable Schedule D.

Additional Information.   See Pub. 544, Sales and Other Dispositions of Assets. Also see Pub. 550, Investment Income and Expenses (Including Capital Gains and Losses).

Special Rules

At-Risk Rules

If you report a loss on an asset used in an activity for which you are not at risk, in whole or in part, see the Instructions for Form 6198, At-Risk Limitations. Also, see Pub. 925, Passive Activity and At-Risk Rules. Losses from passive activities are subject first to the at-risk rules and then to the passive activity rules.

Depreciable Property and Other Property Disposed of in the Same Transaction

If you disposed of both depreciable property and other property (for example, a building and land) in the same transaction and realized a gain, you must allocate the amount realized between the two types of property based on their respective fair market values (FMVs) to figure the part of the gain to be recaptured as ordinary income because of depreciation. The disposition of each type of property is reported separately in the appropriate part of Form 4797 (for example, for property held more than 1 year, report the sale of a building in Part III and land in Part I).

Disposition of Assets That Constitute a Trade or Business

If you sell a group of assets that make up a trade or business and the buyer's bases in the assets are determined wholly by the amount paid for the assets, both you and the buyer generally must allocate the total sales price to the assets transferred. File Form 8594, Asset Acquisition Statement, to report the sale. See Pub. 544 for more details on the sale of business assets.

Installment Sales

If you sold property at a gain and you will receive a payment in a tax year after the year of sale, you generally must report the sale on the installment method unless you elect not to do so.

Use Form 6252 to report the sale on the installment method. Also use Form 6252 to report any payment received during your 2013 tax year from a sale made in an earlier year that you reported on the installment method.

To elect out of the installment method, report the full amount of the gain on a timely filed return (including extensions). If you timely filed your tax return without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Write “Filed pursuant to section 301.9100-2” at the top of the amended return.

For a detailed discussion of installment sales, seePublication 537, Installment Sales.

Traders Who Made a Mark-To-Market Election

A trader in securities or commodities may elect under section 475(f) to use the mark-to-market method to account for securities or commodities held in connection with a trading business. Under this method of accounting, any security or commodity held at the end of the tax year is treated as sold (and reacquired) at its FMV on the last business day of that year.

Unless you are a new taxpayer, the election must be made by the due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective.

If you are a trader in securities or commodities with a mark-to-market election under section 475(f) in effect for the tax year, the following special rules apply.

  • Gains and losses from all securities or commodities held in connection with your trading business (including those marked to market) are treated as ordinary income and losses, instead of capital gains and losses. As a result, the lower capital gain tax rates and the limitation on capital losses do not apply.

  • The gain or loss from each security or commodity held in connection with your trading business (including those marked to market) is reported on Form 4797, line 10. See the instructions for line 10.

  • The wash sale rule does not apply to securities or commodities held in connection with your trading business.

For details on the mark-to-market election and how to make it, see sections 475(e) and 475(f). Also see Pub. 550.

Sale of Home Used for Business

If you sold property that was your home and you used it for business or to produce rental income, you may need to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). If you use property partly as a home, and partly for business or to produce income, the treatment of any gain on the sale depends on whether the business or rental part of the property is part of your home or separate from it. For more details, see Property Used Partly for Business or Rental in Pub. 523, Selling Your Home.

Exclusion of gain on sale of home used for business.   If the property sold was used for business or to produce rental income and was also owned and used as your principal residence during the 5-year period ending on the date of the sale, you may be able to exclude part or all of the gain figured on Form 4797. However, the exclusion may not apply to the part of the gain that is allocated to any period after December 31, 2008, during which the property was not used as your principal residence. For details on the exclusion (including how to figure the amount of the exclusion), see Pub. 523.

  If the property was held more than 1 year, complete Part III to figure the amount of the gain. Do not take the exclusion into account when figuring the gain on line 24. If line 22 includes depreciation for periods after May 6, 1997, you cannot exclude gain to the extent of that depreciation. On line 2 of Form 4797, write “Section 121 exclusion,” and enter the amount of the exclusion as a (loss) in column (g).

  If the property was held for 1 year or less, report the sale and the amount of the exclusion, if any, in a similar manner on line 10 of Form 4797.

Involuntary Conversion of Property

You may not have to pay tax on a gain from an involuntary or compulsory conversion of property. See Pub. 544 for details.

Passive Loss Limitations

If you have an overall loss from passive activities and you report a loss on an asset used in a passive activity, use Form 8582, Passive Activity Loss Limitations, or Form 8810, Corporate Passive Activity Loss and Credit Limitations, as applicable, to see how much loss is allowed before entering it on Form 4797.

You cannot claim unused passive activity credits when you dispose of your interest in an activity. However, if you dispose of your entire interest in an activity, you may elect to increase the basis of the credit property by the original basis reduction of the property to the extent that the credit has not been allowed because of the passive activity rules. Make the election on Form 8582-CR, Passive Activity Credit Limitations, or Form 8810, as applicable. No basis adjustment may be elected on a partial disposition of your interest in an activity.

Recapture of Preproductive Expenses

If you elect not to use the uniform capitalization rules of section 263A, any plant that you produce is treated as section 1245 property. For dispositions of plants reportable on Form 4797, enter the recapture amount taxed as ordinary income on line 22 of Form 4797. See Disposition of plants and animals in chapter 9 of Pub. 225, Farmer's Tax Guide, for details.

Section 197(f)(9)(B)(ii) Election

If you made the election under section 197(f)(9)(B)(ii) to recognize gain on the disposition of a section 197 intangible and to pay a tax on that gain at the highest tax rate, include the additional tax on Form 1040, line 44 (or the appropriate line of other income tax returns). Check box c and enter “197” and the tax in the space next to that box. The additional tax is the amount that, when added to any other income tax on the gain, equals the gain multiplied by the highest tax rate.

Exclusion of Gain From Sale of DC Zone Assets

If you sold or exchanged a District of Columbia Enterprise Zone (DC Zone) asset that you acquired after 1997 and before 2012, and held for more than 5 years, you may be able to exclude the amount of “qualified capital gain.” The qualified gain is, generally, any gain recognized in a trade or business that you would otherwise include on Form 4797, Part I. This exclusion also applies to an interest in, or property of, certain businesses operating in the District of Columbia.

DC Zone asset.   A DC Zone asset is any of the following.
  • DC Zone business stock.

  • DC Zone partnership interest.

  • DC Zone business property.

Qualified capital gain.   The qualified capital gain is any gain recognized on the sale or exchange of a DC Zone asset that is a capital asset or property used in a trade or business. It does not include any of the following gain:
  • Gain treated as ordinary income under section 1245;

  • Gain treated as unrecaptured section 1250 gain. The section 1250 gain must be figured as if it applied to all depreciation rather than the additional depreciation;

  • Gain attributable to real property, or an intangible asset, which is not an integral part of a DC Zone business; and

  • Gain from a related-party transaction. See Sales and Exchanges Between Related Persons in chapter 2 of Pub. 544.

  See section 1400B for more details on DC Zone assets and special rules.

How to report.   Report the entire gain realized from the sale or exchange as you otherwise would without regard to the exclusion. To report the exclusion, enter “DC Zone Asset Exclusion” on Form 4797, line 2, column (a) and enter as a (loss) in column (g) the amount of the exclusion that offsets the gain reported in Part I, line 6.

  
Any unrecaptured section 1250 gain is not qualified capital gain. Identify the amount of gain that is unrecaptured section 1250 gain and report it on the Schedule D for the return you are filing.

Exclusion of Gain From Qualified Community Assets

If you sold or exchanged a qualified community asset acquired after 2001 and before 2010 that you held for more than 5 years, you may be able to exclude the “qualified capital gain.” The qualified gain is, generally, any gain recognized in a trade or business that you would otherwise include on Form 4797, Part I. This exclusion also applies to an interest in, or property of, certain renewal community businesses.

Qualified community asset.   A qualified community asset is any of the following.
  • Qualified community stock.

  • Qualified community partnership interest.

  • Qualified community business property.

Qualified capital gain.    Qualified capital gain is any gain recognized on the sale or exchange of a qualified community asset that is a capital asset or property used in a trade or business. It does not include any of the following gains:
  • Gain treated as ordinary income under section 1245;

  • Section 1250 gain figured as if section 1250 applied to all depreciation rather than the additional depreciation;

  • Gain attributable to real property, or an intangible asset, that is not an integral part of a qualified community business; and

  • Gain from a related-party transaction. See Sales and Exchanges Between Related Persons in chapter 2 of Pub. 544.

  See section 1400F for more details and special rules.

How to report.   Report the entire gain realized from the sale or exchange as you otherwise would without regard to the exclusion. To report the exclusion, enter “Qualified Community Asset Exclusion” on Form 4797, line 2, column (a) and enter as a (loss) in column (g) the amount of the exclusion that offsets the gain reported in Part I, line 6.


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