🧾 IRS Form 4797 Instructions: Step-by-Step Guide
Introduction
IRS Form 4797 is used to report sales, exchanges, or involuntary conversions of business property— including depreciable assets, Section 179 property, and noncapital assets—as well as to compute depreciation recapture under Sections 1245, 1250, and 280F :contentReference[oaicite:1]{index=1}.
Form Breakdown
Part I: Section 1231 Transactions (held >1 year)
- Report sales/exchanges of real or depreciable business property held over one year
- Include involuntary conversions (except casualty/theft)
- Record gain or loss after depreciation recapture allocations :contentReference[oaicite:2]{index=2}
Part II: Ordinary Gains and Losses
- For property not in Part I or III
- Includes short-term sales or dispositions
- Handles transactions like abandonments or trade property :contentReference[oaicite:3]{index=3}
Part III: Depreciation Recapture
- Applies to Section 1245/1250 assets
- Compute recapture income using depreciation schedules
- Attach related supporting forms and calculations :contentReference[oaicite:4]{index=4}
Part IV: Section 179 / Listed Property Recapture
- When business use of Section 179 or listed property drops to 50% or less
- Compute recapture amount and adjust basis accordingly :contentReference[oaicite:5]{index=5}
Key Lines to Know
| Line | Function |
|---|---|
| 1a | Enter gross proceeds from 1099-B/1099-S :contentReference[oaicite:6]{index=6} |
| Part I, Lines 2 & 6 | Description, dates, cost basis/depreciation, gain/loss |
| Part III, Line 22 | Total depreciation allowed/allowable |
| Part IV | Recapture Section 179/listed property |
Filing & Attachments
- Attach Form 4797 to your federal return (Form 1040, 1065, 1120, etc.) :contentReference[oaicite:7]{index=7}
- Include related forms: 4684, 6252, 8824, 8949, 8997, etc. :contentReference[oaicite:8]{index=8}
- Due date aligns with tax return deadline (typically April 15 for individuals) :contentReference[oaicite:9]{index=9}
Tips & Reminders
- Ensure proper allocation between capital and depreciable property when both are sold :contentReference[oaicite:10]{index=10}
- Recapture Section 179 if business usage decreases mid-year
- Track nonrecaptured Section 1231 losses for 5 prior years to apply against current gains :contentReference[oaicite:11]{index=11}
- Consider Qualified Opportunity Fund (QOF) elections for deferring Section 1231 gains :contentReference[oaicite:12]{index=12}
Conclusion
Form 4797 can be complex due to its multiple parts: Section 1231 gains, ordinary income, depreciation recapture, and Section 179 adjustments. Careful documentation and cross-referencing with related forms are essential. Consider consulting Pub. 544, Pub. 523, and IRS instructions for detailed guidance.
