DEFINITION of 'Form 4797'

Form 4797 is a tax form distributed by the Internal Revenue Service (IRS) and used to report gains made from the sale or exchange of business property, including but not limited to property used to generate rental income, and property used for industrial, agricultural, or extractive resources.


Business property on Form 4797 may refer to property purchased in order to produce rental income or may refer to a home that was used as a business. Gains made from the sale of oil, gas, geothermal or mineral properties are also reported on Form 4797. If a piece of property was used partially for business purposes or to produce income while also serving as a primary residence, gains from the sale of that property may be eligible for tax exclusion. This is typically the case for self-employed persons and independent contractors who generate their income from home.

Depending on how a piece of property was used (outlined in IRS Publication 463, Section 179), depreciation may adjust the value of the property. It may reduce the book value of the capital asset which, in turn, reduces the taxable gain. Businesses selling their capital assets must enter into Form 4797 information such as description of the property, purchase date, sale or transfer date, cost of purchase, gross sales price, and the depreciation amount which is added to the sales price. The net profit or loss from the transfer or sale of the business property is determined by subtracting the cost basis or purchase price from the sum of sales price and depreciation.

Form 4797 has three parts. In general, most depreciable property held for more than a year are recognized under Part I – Sales or Exchanges of Property Used in a Trade or Business and Involuntary Conversions From Other Than Casualty or Theft. Property held for a year or less and sold for a loss is recorded in Part II – Ordinary Gains and Losses. Capital assets held for more than a year and sold for a profit fall in the section labeled Part III – Gain From Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255. For a corporation or partnership, the total amount entered on Line 17, Part II, must be added to the gross income line on Schedule C. Part IV is labeled Recapture Amounts Under Sections 179 and 280F(b)(2) When Business Use Drops to 50% or Less. (Read our term definition of Listed Property).

When a business, such as a flow-through entity like a partnership or an S Corporation, sells property, partners and shareholders may experience a tax event (a gain or loss) when the property is sold and a form 4797 is filed.

The disposition of capital assets not reported on Schedule D must be reported on Form 4797.

  1. Investment Property

    An investment property is a real estate property purchased with ...
  2. IRS Publication 544

    A document published by the Internal Revenue Service (IRS) that ...
  3. Property Rights

    Property rights are laws created by governments in regard to ...
  4. Income Approach

    A real estate appraisal method that allows investors to estimate ...
  5. Reverse Exchange

    A type of property exchange wherein the replacement property ...
  6. Mill Rate

    The mill rate is the amount of tax payable per dollar of a property's ...
Related Articles
  1. Taxes

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  2. Taxes

    10 Things to Know About 1031 Exchanges

    Real estate swaps grow popular, but traps are many. Here's 10 things to know when considering 1031 swaps. Also: Beware new rules on vacation homes.
  3. Investing

    What You Should Know About Real Estate Valuation

    Accurate real estate valuation is important to mortgage lenders, investors, insurers, and buyers and sellers of real property.
  4. Taxes

    Your Property Tax Assessment: What Does It Mean?

    Understanding your property taxes can protect you from financial shocks.
  5. Investing

    Investing in out-of-state property

    If you can't afford property close to home, consider taking the real estate plunge elsewhere in the country, perhaps out of state.
  6. Investing

    Tips for prospective landlords

    Investing in rental property can generate serious income, but there's more to it than collecting rent. Check out all the pros and cons before you invest in the rental property.
  7. Managing Wealth

    Investing In Foreclosures Not A Get-Rich-Quick Venture

    Investing in foreclosures takes capital, time and careful planning. But it can be lucrative.
  8. Investing

    Top 10 features of a profitable rental property

    Purchasing a residential rental property may sound great. But do you know what to consider when searching for the right property? Check out the following factors that can help your investment ...
Hot Definitions
  1. Market Capitalization

    Market Capitalization is the total dollar market value of all of a company's outstanding shares.
  2. Capital Asset Pricing Model - CAPM

    Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is ...
  3. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  4. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  5. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  6. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
Trading Center