Form 4797 2025: Sales of Business Property, Parts I to IV

Updated October 7, 2026. Quick answer: Form 4797 reports sales of property used in a trade or business, involuntary conversions that are not casualty or theft, and certain recapture amounts. Where an asset is first entered depends on whether it was held more than 1 year and whether it sold at a gain or loss. Part I covers section 1231 transactions, Part II covers ordinary gains and losses, Part III figures depreciation recapture on sections 1245 and 1250 property, and Part IV figures section 179 recapture.

Related reading on this site: IRS Publication 537 and IRS Publication 544.

S corporation return (Form 1120-S) for 2025, read line by line: Form 1120-S lines 1a to 6, Form 1120-S Schedule B questions 6 to 11 and Form 1120-S Schedule K lines 1 to 4.

Partnership return (Form 1065) for 2025, read line by line: Form 1065 lines 4 to 8, Form 1065 Schedule B questions 4 and 5 and Form 1065 Schedule K lines 15 to 21.

Business use of your home (Form 8829), the saver’s credit (Form 8880), clean vehicle credits (Form 8936) and amended returns (Form 1040-X), read line by line: Form 8829 lines 8 to 15 and Form 8936 Parts II and V.

Sales of business property (Form 4797), passive activity losses (Form 8582) and depreciation (Form 4562) for 2025, read line by line: Form 8582 Part VIII, Form 8582 Part IX and Form 4562 Part VI.

Foreign tax credit (Form 1116) and alternative minimum tax (Form 6251) for 2025, read line by line: Form 6251 line 2k, Form 6251 line 2l and Form 6251 lines 2m to 2t.

Schedule D and Schedule E (Form 1040) for 2025, read line by line: Schedule D lines 11 and 12 and Schedule D line 19.

Schedule 1 (Form 1040) for 2025, read line by line: Schedule 1 lines 3 to 6.

More IRS forms and schedules, read line by line: Form 8275 instructions.

More IRS forms and schedules, read line by line: Form 7203 instructions and Form 3115 instructions.

The shareholder’s Schedule K-1 (Form 1120-S), boxes 13 to 19: Schedule K-1 box 17 codes K to O.

The shareholder’s Schedule K-1 (Form 1120-S), read box by box: Schedule K-1 boxes 7 and 8, Schedule K-1 box 9 and Schedule K-1 box 10.

The partner’s Schedule K-1 (Form 1065), read box by box: Schedule K-1 box 11, Schedule K-1 box 12 and Schedule K-1 box 17.

The partner’s Schedule K-1 (Form 1065), read box by box: Schedule K-1 box 8, Schedule K-1 box 9 and Schedule K-1 box 10.

More IRS forms and schedules, read line by line: Form 6198 instructions.

More IRS forms and schedules, read line by line: Form 6252 instructions.

More IRS forms and schedules, read line by line: Form 4562 instructions and Form 4684 instructions.

What Form 4797 is for and where an asset starts

The purpose list begins with business property. “Use Form 4797 to report the following.” The first item is the sale or exchange of real property used in a trade or business and of depreciable and amortizable tangible property used in a trade or business. Involuntary conversions from other than casualty or theft are also on this form.

The instructions include a chart for the first entry. A condensed version:

The line itself matters. Depreciable property sold at a gain after more than 1 year goes to Part III first, which is why the same asset can show up in both Part III and Part I. For a building and land sold together, “you must allocate the amount realized between the two types of property based on their respective fair market values (FMVs) to figure the part of the gain to be recaptured as ordinary income because of depreciation.” “For example, for property held more than 1 year, report the sale of a building in Part III and the land in Part I.” A related walk-through for rentals is on the selling a rental with tenants page.

Part I: section 1231 transactions

“Use Part I to report section 1231 transactions that are not required to be reported in Part III.” The core category is “Sales or exchanges of real or depreciable property used in a trade or business and held for more than 1 year.” The holding period rule is “To figure the holding period, begin counting on the day after you received the property and include the day you disposed of it.”

Some things are excluded: “Inventory or property held primarily for sale to customers;” as are patents, copyrights and similar property created by your personal efforts. Gains from installment sales, like-kind exchanges and Form 4684 enter Part I through lines 3, 4 and 5, and line 7 combines lines 2 through 6.

A gain on line 7 usually becomes a long-term capital gain. The exception is the lookback: “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 to determine how much net section 1231 gain is treated as ordinary income under this rule.”

The instructions work an example: net section 1231 losses of $4,000 and $6,000 in 2020 and 2021, and net gains of $3,000 and $2,000 in 2024 and 2025. The nonrecaptured losses entered on line 8 are $7,000 (that is $10,000 minus the $3,000 applied against 2024). “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.” When there are no prior losses to recapture, the line 7 gain goes to Schedule D. See the Schedule D page.

Part II: ordinary gains and losses

“If a transaction is not reportable in Part I or Part III and the property is not a capital asset reportable on Schedule D, report the transaction in Part II.” “Report on line 10 ordinary gains and losses, not included on lines 11 through 16, including gains and losses from property held 1 year or less.”

Part II also receives a net section 1231 loss from line 7 on line 11 and the line 8 amount on line 12, ordinary recapture from Part III on line 13, and ordinary gain from Forms 6252 and 8824 on lines 15 and 16. Line 17 combines lines 10 through 16.

Two special cases appear in the instructions. For small business stock, “The maximum amount that may be treated as an ordinary loss on Form 4797 is $50,000 ($100,000 if married filing jointly).” For traders with a mark-to-market election, “Gains and losses from all securities or commodities held in connection with your trading business (including those marked to market) are treated as ordinary income and losses, instead of capital gains and losses.” Ordinary treatment of capital items is otherwise handled on the Form 8949 page.

Part III: depreciation recapture, sections 1245 and 1250

“Use Part III to figure recapture of depreciation and other items that must be reported as ordinary income on the disposition of certain property.” “Generally, for property held 1 year or less, do not complete Part III; instead, use Part II.”

The lines run in order. Line 20 is gross sales price, line 21 is cost or other basis plus expense of sale, line 22 is depreciation allowed or allowable, line 23 is adjusted basis, and line 24 is total gain. For section 1245 property, line 25a repeats the depreciation and line 25b is the smaller of line 24 or line 25a. The gross sales price includes “any existing mortgage or other debt the buyer assumes or takes the property subject to.”

A worked case for equipment, with figures chosen here for illustration: sale price $35,000 with cost of $50,000 and depreciation allowed of $30,000. Adjusted basis on line 23 is $50,000 minus $30,000 which gives $20,000. Total gain on line 24 is $35,000 minus $20,000 which gives $15,000. Line 25a is $30,000 and line 25b is the smaller of $15,000 and $30,000 which gives $15,000. All of the gain is depreciation recapture, so it carries through line 31 to line 13 as ordinary income. How that plays out in the year of sale is on the depreciation recapture page.

Section 1250 property is real property, and recapture is narrower: “Generally, section 1250 recapture applies if you used an accelerated depreciation method or you claimed any special depreciation allowance, or the commercial revitalization deduction.” “Additional depreciation is the excess of actual depreciation (including any special depreciation allowance, or commercial revitalization deduction) over depreciation figured using the straight line method.” The instructions exclude MACRS residential rental and nonresidential real property placed in service after 1986 from the line 26 calculation, as long as it was depreciated under those rules. A home that was partly rented is covered on the home sale depreciation recapture page.

The instructions mention unrecaptured section 1250 gain in the DC Zone note: “Identify the amount of gain that is unrecaptured section 1250 gain and report it on the Schedule D for the return you are filing.” Farmland and oil, gas and mineral property have their own sections on lines 27 through 29.

Part IV: section 179 and listed property recapture

“If you took a section 179 expense deduction for property placed in service after 1986 (other than listed property, as defined in section 280F(d)(4)) and the business use of the property decreased to 50% or less this year, complete column (a) of lines 33 through 35 to figure the recapture amount.” Listed property uses column (b).

Line 33 is the section 179 deduction claimed, or for column (b) the depreciation allowable plus any section 179 claimed. Line 34 is the depreciation that would have been allowable. “Subtract line 34 from line 33 and enter the recapture amount as “other income” on the same form or schedule on which you took the deduction.” “Be sure to increase your basis in the property by the recapture amount.”

Installment sales, like-kind exchanges, involuntary conversions and business sales

Installment treatment is the default: “If you sold property at a gain and you will receive a payment in a tax year after the year of sale, you must generally report the sale on the installment method unless you elect not to do so.” “Enter any gain from the installment sale on Form 4797, line 4 or line 15, as applicable.” “To elect out of the installment method, report the full amount of the gain on a timely filed return (including extensions).” See the installment sale recapture page, the electing out page and the earnout page.

Like-kind exchanges run through Form 8824: “For exchanges of real property used in a trade or business (and other noncapital assets), enter the gain or (loss) from Form 8824, if any, on Form 4797, line 5 or line 16.” The form itself is on the Form 8824 page.

Involuntary conversions have two paths: “Use Form 4684, to report involuntary conversions from casualties and thefts.” “You may not have to pay tax on a gain from an involuntary or compulsory conversion of property.”

When a whole business is sold, “File Form 8594, Asset Acquisition Statement, to report the sale.” Price allocation is discussed on the purchase price allocation page and the planning side on the advisor for selling a business page. A home used partly for business is split: “Any gain or loss on the part of the home used for business is an ordinary gain or loss, as applicable, reportable on Form 4797.”

Which revision applies

The edition read for this page is the 2025 Form 4797 and its instructions, which are the revision irs.gov served when they were read on 2026-10-07. A later revision can change line numbers or wording, so check the revision printed on the form you are filling in. “For the latest information about developments related to Form 4797 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form4797.”

Every Form 4797 line and part page in one table

Each row links to the page that reads a line, group of lines or part of Form 4797. The right column is the summary each page carries.

Common mistakes

• Reporting a gain on depreciable property held more than 1 year entirely in Part I. The chart sends it to Part III first, where recapture is figured before any remainder reaches Part I.
• Skipping the 5 year lookback on line 8. A net section 1231 gain is ordinary income to the extent of nonrecaptured section 1231 losses from the 5 preceding tax years.
• Treating land and building as one asset in a combined sale. The amount realized is allocated by fair market value, with the building in Part III and the land in Part I for property held more than 1 year.

Related: Schedule D (Form 1040), Form 8949, Form 8824, and depreciation recapture in year one.

Sources

• Instructions for Form 4797 (2025): https://www.irs.gov/pub/irs-pdf/i4797.pdf
• Form 4797 (2025): https://www.irs.gov/pub/irs-pdf/f4797.pdf

Read from the IRS documents linked above on October 7, 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.