Form 4797: Sales of Business Property Explanation

Adjusting Journal Entry Definition

What is Form 4797: Sales of Commercial Property?

Form 4797: Sales of Commercial Property is a tax form distributed by the Internal Revenue Service (IRS) and used to report gains realized on the sale or exchange of commercial property, including, but not limited to, goods used to generate rental income and goods used for industrial, agricultural or extractive resources.

Who can file Form 4797: Sales of Commercial Property?

Business property on Form 4797 may refer to property purchased to generate rental income or may refer to a house that has been used as a business. Gains from the sale of oil, gas, geothermal or mineral properties are also reported on Form 4797. If any property was used in part for commercial purposes or to generate income while serving as your principal residence, the gains from of the sale of this property may be eligible for tax exclusion. This is generally the case for the self-employed and independent entrepreneurs who earn their income from their homes.

The net profit or net loss resulting from the transfer or sale of the commercial property is determined by subtracting the base price or the purchase price from the sum of the sale price and depreciation.

Businesses selling fixed assets must enter information such as a description of the property, the date of purchase, the date of sale or transfer, the cost of purchase, the gross sale price and the amount depreciation, which is added to the sale price.

How to File Form 4797: Sales of Commercial Property

Form 4797 has three parts. In general, most depreciable property held for more than a year is recorded in Part I – Sales or exchanges of property used in a business or enterprise and involuntary conversions of persons other than victims or theft. Property held for a year or less and sold for loss is recorded in Part II – Ordinary Gains and Losses. Capital assets held for more than a year and sold for profit fall in the section entitled Part III – Gain from the alienation of property under articles 1245, 1250, 1252, 1254 and 1255. For a company or a partnership, the total amount entered on Line 17, Part II, must be added to the gross income line of Schedule C. Part IV is entitled Recovery amounts under sections 179 and 280F (b) (2) when commercial use drops to 50% or less.

When a business, such as an intermediary entity such as a partnership or an S corporation, sells a property, the partners and the shareholders may suffer a tax event (a gain or a loss) when the property is sold and Form 4797 is filed.

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

Download form 4797: Sales of commercial goods

Here is a link to a downloadable form 4797: Sales of commercial goods.

Key points to remember

  • Form 4797 is used to report gains realized on the sale or exchange of commercial property, including, but not limited to, property used to generate rental income and property used for industrial, agricultural resources or extractives.
  • The net profit or net loss resulting from the transfer or sale of the commercial property is determined by subtracting the base price or the purchase price from the sum of the sale price and depreciation.
  • The disposition of capital property not reported in Schedule D must be reported on Form 4797.

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