What is Form 4797, Sale of Business Property?

Filing Form 4797, Sales of Business Property helps the IRS track your business assets and the gains associated with those assets. You are required to file this form to report:

  • Sales and transfers of depreciable property you use for business. This includes rental properties (including your primary home that you later converted into a rental property) and homes used for business as well as farmland, properties with oil, gas or geothermal interests, noncapital assets, livestock and other real or tangible business property.
  • Involuntary conversion of business property or capital assets owned for more than one year (unless the conversion was due to theft or casualty)
  • Gain or loss from the sale or transfer of S-corporation-owned Section 179 property

Other uses for the Form 4797 include reporting certain gains and losses by securities and commodities traders; electing to defer certain Section 1231 gains when invested in a qualified opportunity fund; and calculating Section 179 and Section 280F(b)(2) recapture.

The IRS provided instructions contain a detailed worksheets to help you determine the amount of gain or loss you incurred. You must enter a description of the property; the dates of acquisition and transfer; depreciation on the property since you first acquired it or placed it into service; your cost basis and the costs of improvements and expenses you paid in selling or transferring the property.

For each property reported, you will need to calculate the length of your ownership. Gains from property you owned for longer than one year are taxed differently than those stemming from property owned for less than one year (even if you owned the property for only one day more or less than one year).

If you are self-employed or work from home and you claim a home office deduction, you do not usually have to file Form 4797 if you sell your primary home. However, you must deduct the total amount you have claimed in home office deductions from the capital gains exclusion (currently 250,000 for single filers and $500,000 for married taxpayers who are filing jointly). 

Important: Do not report the same gains on Form 4797 and Schedule D. Use Schedule D to report gains from the sale of property that was exclusively for personal use. If you sell property that had both business and personal use, you may need to allocate the appropriate amount of gain between both forms.

 

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