Form 4797
Form 4797 is an IRS tax form that’s used to report capital gains or losses on certain types of business property. This tax form can be confusing to those who are unfamiliar with it.
Many investors and business owners find filing IRS forms with the IRS to be a daunting task, and Form 4797 in particular can seem particularly confusing. However, it is actually not as difficult as many people initially assume. Having the right information and properly tracking capital assets used for business and personal purposes will help make filling out this form significantly easier. To begin, it’s essential to clearly understand the purpose of Form 4797 and how the various sections relate to one another. In short, this form is used to report the gain or loss from the sale of business property. This can include anything from tangible assets such as machinery and equipment to intangible assets such as patents and copyrights.
How to File Form 4797?
The form consists of three parts, each requiring different types of information. For example, Part I will require a detailed description of the property in question, while Part III will ask for details about the specific physical real estate that was sold (e.g., a building or land). Part II will also require detailed information about the property’s previous owners.
For property you sell or exchange, use part I of Form 4797 to figure the gain from the sale (or exchange if applicable). Part III of the form is used to recapture depreciation and other items that must be reported as ordinary income on the disposition of property. For details on how to complete this part of the form, see Pub. 544, section 1400F.
How to Fill out Form 4797?
The first step is to determine the original cost basis for all property sold or exchanged. This will typically be the purchase price but may also consider any improvements, depreciation and other amounts included in the overall cost basis of the asset. Next, add up all of the gains that are recorded on Lines 2-6 and put this total in Line 7. Finally, subtract any unrecaptured Section 1231 losses from Line 9 and add that amount to Line 7 to arrive at your total gain from the sale or exchange.
The final part of the form will request a total summary of the gains and losses that were realized on each piece of property sold. The total gain should then be calculated by subtracting line 33 from line 34. Finally, if any depreciation recapture amounts are included in the total gain, they must be reported on line 35. As with any complex tax form, it’s best to consult with a CPA to file your Form 4797 without any trouble.
