Form 4797, Sales of Business Property, is where you report selling or exchanging property used in your trade or business, such as equipment, vehicles, buildings and business land, plus depreciation recapture and certain involuntary conversions. As of October 2026, assets held more than 1 year generally go in Part I (section 1231) or Part III (recapture), and assets held 1 year or less go in Part II.
If you've sold a work van, a piece of machinery or a building your business used, this is your form, not Schedule D. The tricky part isn't the arithmetic. It's knowing which of the four parts each sale belongs in, and that's what this page covers.
What goes on Form 4797
- The sale or exchange of real property used in your trade or business.
- Depreciable and amortizable tangible property used in your business.
- Oil, gas, geothermal or other mineral properties.
- Involuntary conversions (other than casualty or theft) of business property and of capital assets held more than 1 year in connection with a business.
- Section 179 and listed property recapture when business use drops to 50% or less.
- Ordinary gains and losses for securities traders who made a mark-to-market election under section 475(f).
Some things go elsewhere. Casualty and theft go on Form 4684, installment sales start on Form 6252, like-kind exchanges of real property on Form 8824, and inventory isn't reported here at all.
Which part of Form 4797 to use
| Property | Held 1 year or less | Held more than 1 year |
|---|---|---|
| Depreciable equipment and other tangible business property, sold at a gain | Part II | Part III (1245) |
| The same, sold at a loss | Part II | Part I |
| Depreciable business real property, sold at a gain | Part II | Part III (1250) |
| The same, sold at a loss | Part II | Part I |
| Property expensed under the de minimis safe harbor | Part II | Part II |
| Farmland used in the business (other than soil and water expense land) | Part II | Part I |
Cattle and horses used for draft, breeding, dairy or sport need 24 months to reach Part I, and other livestock 12 months. To count the holding period, start the day after you got the property and include the day you sold it.
Recapture: why a gain on equipment is often ordinary income
Part III works out how much of a gain is recaptured as ordinary income because of the depreciation you claimed. Section 1245 property covers personal property such as machinery, and Section 1250 covers depreciable real property. The instructions say section 1250 recapture doesn't apply to most MACRS buildings placed in service after 1986, such as 27.5-year residential rental and 39-year nonresidential real property, so there's no additional depreciation to figure for them on line 26.
If you sell a building and the land under it together, you split the price between the two by fair market value. The building goes in Part III and the land in Part I, each reported separately.
The section 1231 look-back rule
A net section 1231 gain goes to Schedule D as a long-term capital gain, but not if you had net section 1231 losses in the previous 5 years that haven't been recaptured yet. The IRS example: losses of $4,000 in 2020 and $6,000 in 2021, then gains of $3,000 in 2024 and $2,000 in 2025. After the 2024 gain uses up part of the losses, $7,000 is still unrecaptured, so the whole $2,000 gain for 2025 is taxed as ordinary income. Without those old losses, the gain would have gone to Schedule D as a long-term capital gain, so check this line before you assume capital gain treatment.
Special cases worth knowing
- Home used for business: the business part of the sale goes on Form 4797, and you may be able to exclude gain if it was your main home for the right period in the 5 years before the sale.
- Section 1244 small business stock: individuals can treat up to $50,000 of loss as ordinary ($100,000 if married filing jointly) on line 10.
- Depreciable property not used in a business but held for investment: the gain is generally capital, but the recapture part is figured in Part III.
- Selling a whole business: both buyer and seller allocate the price across the assets on Form 8594.
- Partial dispositions of MACRS assets: if you elect to report one, write Partial Disposition Election in the asset description.
Acquiring a business has its own statement, explained in our asset acquisition statement guide.
How to complete Form 4797, step by step
- List every business asset you sold or disposed of in the year, with dates acquired and sold.
- Pull your depreciation records. They're usually on past Form 4562 filings.
- Sort each asset into Part I, II or III using the table above.
- Work out recapture in Part III, then carry the rest of the gain to Part I.
- Apply the 5 year look-back on line 8 to any net section 1231 gain.
- Carry the results to your return: Schedule D for capital gain, and the ordinary gain or loss line for the rest.
Sole proprietors still report the year's trading profit on Schedule C; Form 4797 is only for the asset sale itself.
Want AI doing the heavy lifting in your marketing?
I build the systems that handle the boring 80 percent, so you get your week back. Done properly, with the human kept in.
The verdict
Form 4797 rewards good records. Know when you bought each asset, what you paid and how much depreciation you've claimed, and the form mostly fills itself in. Guess, and you'll either pay ordinary rates on gain that should've been capital or miss recapture the IRS expects to see. Check the 5 year look-back before you assume a profitable asset sale will be taxed at capital gain rates.
Related: investment (this site).
Frequently asked questions
What is Form 4797 used for?
It reports the sale or exchange of property used in a trade or business, depreciation recapture, certain involuntary conversions and section 179 or listed property recapture when business use falls to 50% or less.
Do I use Form 4797 or Schedule D for business property?
Business property goes on Form 4797. Schedule D and Form 8949 are for capital assets not reported elsewhere, though a net section 1231 gain from Form 4797 can end up on Schedule D.
What is section 1231 property?
Real or depreciable property used in a trade or business and held for more than 1 year, plus certain timber, coal, iron ore, livestock and unharvested crops.
Is a gain on Form 4797 taxed as ordinary income?
The part that recaptures depreciation is ordinary income, and a net section 1231 gain is ordinary to the extent of unrecaptured section 1231 losses from the previous 5 years. The rest of a net 1231 gain is generally treated as long-term capital gain.
Do I report the sale of a home office on Form 4797?
The part of a home used for business may go on Form 4797. Gain on the personal part is a capital gain, and you can't deduct a loss on the personal part.
