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Form 4797: Business Property Sales (2025 IRS Guide)

This guide covers “Form 4797” within business property sales. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 544 (2025), Sales and Other Dispositions of Assets, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Form 4797

Use Form 4797 to report the following.

  • The sale or exchange of:

    1. Real property used in your trade or business;

    2. Depreciable and amortizable tangible property used in your trade or business (however, see Disposition of depreciable property not used in trade or business, later);

    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 more than 1 year for business or profit (however, see Disposition of depreciable property not used in trade or business, later).

  • 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 and S corporations.

  • The computation of recapture amounts under sections 179 and 280F(b)(2) of the Internal Revenue Code, 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 section 475(f) of the Internal Revenue Code.

  • Election to defer a qualified section 1231 gain invested in a QOF. See the Instructions for Form 4797.

Use Form 4797 with forms such as Form 1040, 1065, 1120, or 1120-S.

Section 1231 gains and losses.

Show any section 1231 gains and losses in Part I. Carry a net gain to Schedule D as a long-term capital gain. Carry a net loss to Part II of Form 4797 as an ordinary loss.

If you had any nonrecaptured net section 1231 losses from the preceding 5 tax years, reduce your net gain by those losses and report the amount of the reduction as an ordinary gain in Part II. Report any remaining gain on Schedule D. See Section 1231 Gains and Losses in chapter 3.

Ordinary gains and losses.

Show any ordinary gains and losses in Part II. This includes a net loss or a recapture of losses from prior years figured in Part I of Form 4797. It also includes ordinary gain figured in Part III.

Mark-to-market election.

If you made a mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Form 8949 and Schedule D. See the Instructions for Form 4797. Also see Special Rules for Traders in Securities or Commodities in chapter 4 of Pub. 550.

Ordinary income from depreciation.

Figure the ordinary income from depreciation on personal property and additional depreciation on real property (as discussed in chapter 3) in Part III. Carry the ordinary income to Part II of Form 4797 as an ordinary gain. Carry any remaining gain to Part I as section 1231 gain, unless it is from a casualty or theft. Carry any remaining gain from a casualty or theft to Form 4684.

Disposition of depreciable property not used in trade or business.

Generally, gain from the sale or exchange of depreciable property not used in a trade or business but held for investment or for use in a not-for-profit activity is capital gain. Generally, the gain is reported on Form 8949 and Schedule D. However, part of the gain on the sale or exchange of the depreciable property may have to be recaptured as ordinary income on Form 4797. Use Part III of Form 4797 to figure the amount of ordinary income recapture. The recapture amount is included on line 31 (and line 13) of Form 4797. See the instructions for Form 4797, Part III.

If the total gain for the depreciable property is more than the recapture amount, the excess is reported on Form 8949. On Form 8949, enter “From Form 4797” in column (a) of Part I (if the transaction is short term) or Part II (if the transaction is long term). Skip columns (b) and (c). In column (d), enter the excess of the total gain over the recapture amount. Leave columns (e) through (g) blank and complete column (h). If you invested this gain in a QOF and intend to elect the temporary deferral of the gain, see the Instructions for Form 8949, Form 8997 and its instructions, and the instructions for the applicable Schedule D.

Generally, loss from the sale or exchange of depreciable property not used in a trade or business but held for investment or for use in a not-for-profit activity is a capital loss. Report the loss on Form 8949 in Part I (if the transaction is short term) or Part II (if the transaction is long term). You can deduct capital losses up to the amount of your capital gains. In the case of taxpayers other than corporations, you can also deduct the lower of $3,000 ($1,500 if you are a married individual filing a separate return) or the excess of such losses over such gains. See the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040).

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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