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Key Takeaways. Form 4797 is a tax form distributed by the Internal Revenue Service (IRS). Form 4797 is used to report gains made from the sale or exchange of business property, including property used to generate rental income, and property used for industrial, agricultural, or extractive resources.
After the sale of an asset, IRS Form 4797 is used to report depreciation recapture and the total gain or profit from the real estate sale. The total depreciation expense taken to reduce taxable net income is recaptured by the IRS and taxed at the investors ordinary income tax rate, up to a maximum tax rate of 25%.
Section 179 eligible property includes: Property listed under MACRS (the modified accelerated cost recovery system) with a recovery period of no more than 20 years. Water utility properties. Specified plants. Qualified improvement property.
Depreciation allowed is the amount that must be recaptured as ordinary income and is reported on Form 4797, Part II, then carries to Form 1040, Line 14. Any remainder amounts, which is the Cost/Basis minus Depreciation allowed, is classified as a capital gain and is reported on Schedule D.
Treatment of Sec. 1231 gains and losses for the year. If you have a net Sec. 1231 loss, its an ordinary loss. Not only can such a loss be used to offset your ordinary income, but youre also not subject to the normal $3,000 limit per year limitation on how much of the loss can be used against ordinary income.
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Depreciation allowed is the amount that must be recaptured as ordinary income and is reported on Form 4797, Part II, then carries to Form 1040, Line 14.
Section 1231 losses are treated as ordinary losses and reduce other ordinary income (such as wages). Section 1231 gains are given long term capital gain treatment and subsequently reported on Schedule D.
If you sold property that was your home and you also used it for business, you may need to use Form 4797 to report the sale of the part used for business (or the sale of the entire property if used entirely for business). Gain or loss on the sale of the home may be a capital gain or loss or an ordinary gain or loss.
11481: Methods to Generate Form 4797 Method 1: To generate Form 4797 from the 4562 screen, use the IF SOLD section of the screen. Method 2: Enter only a Date Sold on the 4562 screen, then complete the 4797 screen. Method 3: Enter data on the 4562 to recapture Section 179 expenses claimed.
The net 1231 losses are reported as nonrecaptured net section 1231 losses from prior years when you report a net 1231 gain on Form 4797 within five years of the net 1231 loss.

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