Updated October 18, 2026. Quick answer: Line 7 combines lines 2 to 6. A zero or a loss goes to line 11. A gain with no unrecaptured prior-year section 1231 losses goes to Schedule D as a long-term capital gain. If you do have such losses, line 8 holds them and line 9 shows what is left.
S corporation return (Form 1120-S) for 2025, read line by line: Form 1120-S Schedule K lines 5 to 10.
Line 7: combine Part I
The form’s line 7 caption is “Combine lines 2 through 6. Enter the gain or (loss) here and on the appropriate line as follows”. For partners and shareholders the form says “Partnerships and S corporations. Report the gain or (loss) following the instructions for Form 1065, Schedule K, line 10, or Form 1120-S, Schedule K, line 9.” The instructions add “Partners and S corporation shareholders receive a Schedule K-1 (Form 1065 or Form 1120-S), which includes amounts that must be reported on Form 4797.” The partner side of the box is at Schedule K-1 box 10.
Where line 7 goes
For individuals the form says “If line 7 is zero or a loss, enter the amount from line 7 on line 11 below and skip lines 8 and 9.” For a gain, it says “If line 7 is a gain and you didn’t have any prior year section 1231 losses, or they were recaptured in an earlier year, enter the gain from line 7 as a longterm capital gain on the Schedule D filed with your return and skip lines 8, 9, 11, and 12 below.” The Schedule D side is explained at Schedule D.
Line 8: nonrecaptured net section 1231 losses
The form’s caption is “Nonrecaptured net section 1231 losses from prior years.” The instructions define it: “Your nonrecaptured section 1231 losses are your net section 1231 losses deducted during the 5 preceding tax years that have not yet been applied against any net section 1231 gain”. They explain what a loss year is: “You had a net section 1231 loss if section 1231 losses exceeded section 1231 gains.” And they state the effect: “Your net section 1231 gain on line 7 is treated as ordinary income to the extent of your nonrecaptured section 1231 losses.”
The IRS example
The instructions work an example: “You had net section 1231 losses of $4,000 and $6,000 in 2020 and 2021, respectively, and net section 1231 gains of $3,000 and $2,000 in 2024 and 2025, respectively.” The result is “The entire $2,000 net section 1231 gain on line 7 is treated as ordinary income and is entered on line 12 of Form 4797.”
For the records, they add “For recordkeeping purposes, the $4,000 loss from 2020 is all recaptured ($3,000 in 2024 and $1,000 in 2025), and you have $5,000 of section 1231 losses from 2021 left to recapture ($6,000 minus the $1,000 recaptured this year).”
Line 9: what is left after line 8
The form’s line 9 reads “Subtract line 8 from line 7.” It continues “If line 9 is zero, enter the gain from line 7 on line 12 below.” and “If line 9 is more than zero, enter the amount from line 8 on line 12 below and enter the gain from line 9 as a longterm capital gain on the Schedule D filed with your return.”
The instructions say “For recordkeeping purposes, if line 9 is zero, the amount on line 7 is the amount of net section 1231 loss recaptured in 2025.” and “If line 9 is more than zero, you have recaptured all of your net section 1231 losses from prior years.”
As a computed illustration, not an IRS example: if line 7 is a gain of $9,000 and line 8 is $7,000, line 9 is $2,000 (computed as $9,000 minus $7,000). The $7,000 from line 8 goes to line 12, and the $2,000 from line 9 goes to Schedule D as a long-term capital gain.
Where the number comes from
Line 7 is the sum of the Part I rows on the lines 2 to 6 page. Line 8 comes from your own records of net section 1231 losses deducted in the 5 preceding tax years and not yet applied. Line 9 is figured on the form. The form’s capital gain line on the return is explained at Form 1040 line 7.
Where it goes next
A loss on line 7 goes to line 11 and a gain taxed as ordinary income goes to line 12, both on the lines 10 to 12 page. The long-term capital gain amount goes to Schedule D.
Edition and line numbers
This page reads the 2025 Form 4797, Sales of Business Property and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. The form’s own header says “Attach to your tax return.” Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently.
Common mistakes
- Filling in lines 8 and 9 when line 7 is a loss. The form says “If line 7 is zero or a loss, enter the amount from line 7 on line 11 below and skip lines 8 and 9.”
- Sending the line 9 amount to line 12. The form says “enter the amount from line 8 on line 12 below”, and only the line 9 gain goes to Schedule D.
- Ignoring losses from earlier years. The instructions say “Your net section 1231 gain on line 7 is treated as ordinary income to the extent of your nonrecaptured section 1231 losses.”
Related: Form 4797, Schedule K-1 box 10, Schedule D, Form 1040 line 7, and Form 4797 lines 10 to 12.
Sources
- Instructions for Form 4797, Sales of Business Property (2025): https://www.irs.gov/pub/irs-pdf/i4797.pdf
- Form 4797, Sales of Business Property (2025): https://www.irs.gov/pub/irs-pdf/f4797.pdf
Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.