(Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2))
Section references are to the Internal Revenue Code unless otherwise noted.
Use Form 4797 to report:
If you report a loss on an asset used in an activity for which you are not at risk, in whole or in part, see the instructions for Form 6198, At-Risk Limitations. Also, see Pub. 925, Passive Activity and At-Risk Rules. Losses from passive activities are subject first to the at-risk rules and then to the passive activity rules.
If you disposed of both depreciable property and other property (for example, a building and land) in the same transaction and realized a gain, 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. The disposition of each type of property is reported separately in the appropriate part of Form 4797 (for example, for property held more than 1 year, report the sale of a building in Part III and land in Part I).
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Where To Make First Entry for Certain Items Reported on This Form
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(b) (c)
(a) Held 1 year Held more
Type of property or less than 1 year
----------------------------------------------------------------------
1 Depreciable trade or business
property:
a Sold or exchanged at a gain Part II Part III (1245,
1250)
b Sold or exchanged at a loss Part II Part I
2 Depreciable residential rental
property:
a Sold or exchanged at a gain Part II Part III (1250)
b Sold or exchanged at a loss Part II Part I
3 Farmland held less than 10 years upon
which soil, water, or land clearing
expenses were deducted:
a Sold at a gain Part II Part III (1252)
b Sold at a loss Part II Part I
4 All other farmland Part II Part I
5 Disposition of cost-sharing payment
property described in section 126 Part II Part III (1255)
----------------------------------------------------------------------
6 Cattle and horses used in a trade or Held less Held 24
business for draft, breeding, dairy, than 24 months
or sporting purposes: months or more
----------------------------
a Sold at a gain Part II Part III (1245)
b Sold at a loss Part II Part I
c Raised cattle and horses sold at a
gain Part II Part I
----------------------------------------------------------------------
7 Livestock other than cattle and Held less Held 12
horses used in a trade or business than 12 months
for draft, breeding, dairy, or months or more
sporting purposes: ----------------------------
a Sold at a gain Part II Part III (1245)
b Sold at a loss Part II Part I
c Raised livestock sold at a gain Part II Part I
----------------------------------------------------------------------
If you sell a group of assets that makes up a trade or business, both you and the buyer generally must allocate the total sales price to the assets transferred and file Form 8594, Asset Acquisition Statement. Pub. 544, Sales and Other Dispositions of Assets, discusses the sale of business assets in chapter 2 under Other Dispositions.
If you sold property at a gain and you will receive a payment in a tax year after the year of sale, you generally must report the sale on the installment method unless you elect not to do so.
Use Form 6252 to report the sale on the installment method. Also use Form 6252 to report any payment received during your 2006 tax year from a sale made in an earlier year that you reported on the installment method.
To elect out of the installment method, report the full amount of the gain on a timely filed return (including extensions). If you timely filed your tax return without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Write "Filed pursuant to section 301.9100-2" at the top of the amended return.
See Pub. 537, Installment Sales, for more details.
A trader in securities or commodities may elect under section 475(f) to use the mark-to-market method to account for securities or commodities held in connection with a trading business. Under this method of accounting, any security or commodity held at the end of the tax year is treated as sold (and reacquired) at its FMV on the last business day of that year.
Unless you are a new taxpayer, the election must be made by the due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective.
If you are a trader in securities or commodities with a mark-to-market election under section 475(f) in effect for the tax year, the following special rules apply.
For details on the mark-to-market election and how to make it, see Pub. 550, Investment Income and Expenses; sections 475(e) and 475(f); and Rev. Proc. 99-17, 1999-1 C.B. 503. You can find Rev. Proc. 99-17 on page 52 of Internal Revenue Bulletin 1999-7 at www.irs.gov/pub/irs-irbs/irb99-07.pdf.
You may not have to pay tax on a gain from an involuntary or compulsory conversion of property. See Pub. 544 for details.
If the property sold was used for business or to produce rental income and was also owned and used as your home during the 5-year period ending on the date of the sale, you may be able to exclude part or all of the gain figured on Form 4797. For details on the exclusion (including how to figure the amount of the exclusion), see Pub. 523, Selling Your Home.
If the property was held more than 1 year, complete Part III to figure the amount of the gain. Do not take the exclusion into account when figuring the gain on line 24. If line 22 includes depreciation for periods after May 6, 1997, you cannot exclude gain to the extent of that depreciation. On line 2 of Form 4797, write "Section 121 exclusion," and enter the amount of the exclusion as a (loss) in column (g).
If the property was held for 1 year or less, report the sale and the amount of the exclusion, if any, in a similar manner on line 10 of Form 4797.
If you have an overall loss from passive activities and you report a loss on an asset used in a passive activity, use Form 8582, Passive Activity Loss Limitations, or Form 8810, Corporate Passive Activity Loss and Credit Limitations, to see how much loss is allowed before entering it on Form 4797.
You cannot claim unused passive activity credits when you dispose of your interest in an activity. However, if you dispose of your entire interest in an activity, you may elect to increase the basis of the credit property by the original basis reduction of the property to the extent that the credit has not been allowed because of the passive activity rules. Make the election on Form 8582-CR, Passive Activity Credit Limitations, or Form 8810. No basis adjustment may be elected on a partial disposition of your interest in an activity.
If you elected out of the uniform capitalization rules of section 263A, any plant that you produce is treated as section 1245 property. For dispositions of plants reportable on Form 4797, enter the recapture amount taxed as ordinary income on line 22 of Form 4797. See Disposition of plants and animals in chapter 9 of Pub. 225, Farmer's Tax Guide, for details.
If you elected under section 197(f)(9)(B)(ii) to recognize gain on the disposition of a section 197 intangible and to pay a tax on that gain at the highest tax rate, include the additional tax on Form 1040, line 44 (or the appropriate line of other income tax returns). On the dotted line next to that line, enter "197" and the amount. The additional tax is the amount that, when added to any other income tax on the gain, equals the gain multiplied by the highest tax rate.
If you sold a qualified empowerment zone asset that you held for more than 1 year, you may be able to elect to postpone part or all of the gain that you would otherwise include on Form 4797, Part I. If you make the election, the gain on the sale generally is recognized only to the extent, if any, that the amount realized on the sale exceeds the cost of qualified empowerment zone assets (replacement property) you purchased during the 60-day period beginning on the date of the sale. The following rules apply.
See Pub. 954, Tax Incentives for Distressed Communities, for the definition of empowerment zone and enterprise zone business. You can find out if your business is located within an empowerment zone by using the RC/EZ/EC Address Locator at www.hud.gov/crlocator.
Qualified empowerment zone assets are:
How to report. Report the entire gain realized from the sale as you otherwise would without regard to the election. On Form 4797, line 2, enter "Section 1397B Rollover" in column (a) and enter as a (loss) in column (g) the amount of gain included on Form 4797 that you are electing to postpone. If you are reporting the sale directly on Form 4797, line 2, use the line directly below the line on which you reported the sale.
See section 1397B for more details.
If you sold or exchanged a District of Columbia Enterprise Zone (DC Zone) asset that you held for more than 5 years, you may be able to exclude the "qualified capital gain." The qualified gain is, generally, any gain recognized in a trade or business that you would otherwise include on Form 4797, Part I. This exclusion also applies to an interest in, or property of, certain businesses operating in the District of Columbia.
DC Zone asset. A DC Zone asset is any of the following:
Qualified capital gain. The qualified capital gain is any gain recognized on the sale or exchange of a DC Zone asset that is a capital asset or property used in a trade or business. It does not include any of the following gains.
See Pub. 954 and section 1400B for more details on DC Zone assets and special rules.
How to report. Report the entire gain realized from the sale or exchange as you otherwise would without regard to the exclusion. To report the exclusion, enter "DC Zone Asset Exclusion" on Form 4797, line 2, column (a) and enter as a (loss) in column (g) the amount of the exclusion that offsets the gain reported in Part I, line 6.
Caution: Any unrecaptured section 1250 gain is not qualified capital gain. Identify the amount of gain that is unrecaptured section 1250 gain and report it on the Schedule D for the form you are filing.
If you sold or exchanged qualifying electric transmission property after October 22, 2004, you may elect to defer part of the realized gain. The sale or disposition must be made to an independent transmission company. If you make the election, part or all of the realized gain is recognized ratably over the 8-year period that begins with the tax year that includes the date of the disposition. The amount of gain that is not eligible to be recognized over the 8-year period is the excess, if any, of the amount realized from the disposition over the cost of the exempt utility property purchased during the 4-year period beginning on the date of the disposition. See section 451(i) for more details.
To make the election, you must attach a statement to your timely filed return (including extensions) for the tax year in which the qualifying electric transmission transaction occurred (members of an affiliated group of corporations filing a consolidated return, attach the election to the consolidated tax return).
The statement must provide all of the following details regarding the qualifying electric transmission transaction, including:
Once made, the election is irrevocable.
How to report. Report the sale or disposition of the qualifying electric transmission property in Part III of the Form 4797 without regard to any deferred gain. Enter the amounts from lines 31 and 32 on lines 13 and 6, respectively, of Form 4797.
Figure the gain eligible for deferral and enter it as a loss in column (g) of line 2, but not to exceed the gain from the transaction included on line 6. Enter "Deferred gain under section 451(i)" in column (a) of line 2. Enter any remaining gain eligible for deferral as a loss in column (g) of line 10. Enter "Deferred gain under section 451(i)" in column (a) of line 10. The recognized gain for the tax year of the disposition must equal the gain, if any, not eligible for deferral plus 1/8 of the deferred gain.
To show losses, enclose figures in (parentheses).
If you disposed of property you acquired by inheritance, enter "Inherited" in column (b) instead of the date you acquired the property.
Partners and S corporation shareholders. If you received a Schedule K-1 from a partnership or S corporation reporting the sale, exchange, or other disposition of property for which a section 179 expense deduction was previously claimed and passed through to its partners or shareholders, you must report your share of the transaction on Form 4797, 4684, 6252, or 8824 (whether or not you were a partner or shareholder at the time the section 179 deduction was claimed).
See the worksheet on the next page to figure the amount to report on Form 4797, 4684, 6252, or 8824, and to figure any reduction in your carryforward of the unused section 179 expense deduction. The partnership or S corporation must provide the following information on Schedule K-1 for the transaction.
Note. If you have a carryforward of unused section 179 expense deduction that includes section 179 expense deduction previously passed through to you for the disposed asset, you must reduce your carryforward by your share of the section 179 expense deduction shown on Schedule K-1 (or the amount attributable to that property included in your carryforward amount).
Partnerships and S corporations. Partnerships (other than electing large partnerships) and S corporations do not report these transactions on Forms 4797, 4684, 6252, or 8824. Instead, they provide their partners and shareholders the information they need to report the transactions. See the instructions for Form 1065 or Form 1120S for details on the information that must be reported on Schedule K-1.
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Worksheet for Partners and S Corporation Shareholders to
Figure Gain or Loss on Dispositions of Property for
Which a Section 179 Deduction Was Claimed
Keep for Your Records
----------------------------------------------------------------------
Caution: See the worksheet instructions below before starting.
1. Gross sales price 1. _____
2. Cost or other basis 2. _____
3. a Depreciation (excluding
section 179 expense deduction) 3a. _____
b Section 179
expense deduction 3b. _____
c Unused carryover
of section 179
expense deduction 3c. _____
d Subtract line 3c
from line 3b 3d. _____
e Add lines 3a and 3d 3e. _____
4. Adjusted basis. Subtract line 3e from line 2 4. _____
5. Gain or loss. Subtract line 4 from line 1 (see Where To
Report Amounts From Worksheet, below) 5. _____
Worksheet Instructions
Caution: For a disposition due to casualty or theft, skip lines 1 and
5 and enter the amount from line 4 on Form 4684, line 23, and
complete the rest of Form 4684.
Lines 1, 2, 3a, and 3b. Enter these amounts from
Schedule K-1 (Form 1065 or 1120S).
Line 3c. If you were unable to claim all of the section 179 expense
deduction previously passed through to you for the property (if any),
enter the smaller of line 3b or the portion of your unused
carryover of section 179 expense deduction attributable to the
property. Make sure you reduce your carryover of disallowed section
179 expense deduction shown on Form 4562 by the amount on line 3c.
Where To Report Amounts From Worksheet
Generally, the information from the above worksheet is reported on
the lines specified below for Form 4797, Part III. However, for a
disposition under the installment method, complete the lines shown
below for Form 6252. For dispositions of property given up in an
exchange involving like-kind property, complete the lines shown
below for Form 8824.
If line 5 is a gain and the property was held more than 1 year,
report the disposition as follows.
• Complete Form 4797, line 19, columns (a), (b), and (c);
Form 6252, lines 1 through 4; or Form 8824, Parts I and II.
• Report the amount from line 1 above on Form 4797, line 20;
Form 6252, line 5; or Form 8824, line 12 or 16.
• Report the amount from line 2 above on Form 4797, line 21; or
Form 6252, line 8.
• Report the amount from line 3e above on Form 4797, line 22;
or Form 6252, line 9.
• Report the amount from line 4 above on Form 4797, line 23;
Form 6252, line 10; or Form 8824, line 13 or 18.
• Complete the rest of the applicable form.
If line 5 is zero or a loss and the property was held more than
1 year, report the disposition as follows. Do not report a loss on
Form 6252; instead, report the disposition on the lines shown for
Form 4797.
• Complete Form 4797, line 2, columns (a), (b), and (c); or
Form 8824, Parts I and II.
• Report the amount from line 1 above on Form 4797, line 2,
column (d); or Form 8824, line 12 or 16.
• Report the amount from line 2 above on Form 4797, line 2,
column (f).
• Report the amount from line 3e above on Form 4797, line 2,
column (e).
• Report the amount from line 4 above on Form 8824, line 13 or 18.
• Complete the rest of the applicable form.
If the property was held one year or less, report the gain or loss
on the disposition as shown below. Do not report a loss on
Form 6252; instead, report the disposition on the lines shown for
Form 4797.
• Complete Form 4797, line 10, columns (a), (b), and (c);
Form 6252, lines 1 through 4; or Form 8824, Parts I and II.
• Report the amount from line 1 above on Form 4797, line 10,
column (d); Form 6252, line 5; or Form 8824, line 12 or 16.
• Report the amount from line 2 above on Form 4797, line 10,
column (f); or Form 6252, line 8.
• Report the amount from line 3e above on Form 4797, line 10,
column (e); or Form 6252, line 9.
• Report the amount from line 4 above on Form 6252, line 10;
or Form 8824, line 13 or 18.
• Complete the rest of the applicable form.
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Enter on line 1 the total gross proceeds from:
Use Part I to report section 1231 transactions that are not required to be reported in Part III.
Section 1231 transactions. The following are section 1231 transactions.
Note. Livestock does not include poultry, chickens, turkeys, pigeons, geese, other birds, fish, frogs, reptiles, etc.
Transactions to which section 1231 does not apply. Section 1231 transactions do not include sales or exchanges of:
Partners and S corporation shareholders receive a Schedule K-1 (Form 1065 or Form 1120S), which includes amounts that must be reported on the Form 4797. Following the instructions for Schedule K-1, enter any amounts from your Schedule K-1 (Form 1120S), box 9, or Schedule K-1 (Form 1065), box 10, in Part I of Form 4797.
If the amount from line 7 is a gain and you do not have nonrecaptured section 1231 losses from prior years (see instructions for line 8), enter the gain from line 7 as a long-term capital gain on the Schedule D for the return you are filing.
Your net section 1231 gain on line 7 is treated as ordinary income to the extent of your "nonrecaptured section 1231 losses." 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.
Example. You had net section 1231 losses of $4,000 and $6,000 in 2001 and 2002, respectively, and net section 1231 gains of $3,000 and $2,000 in 2005 and 2006, respectively. The 2006 net section 1231 gain of $2,000 is entered on line 7 and the nonrecaptured net section 1231 losses of $7,000 ($10,000 net section 1231 losses minus the $3,000 that was applied against the 2005 net section 1231 gain) are entered on line 8. 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. For recordkeeping purposes, the $4,000 loss from 2001 is all recaptured ($3,000 in 2005 and $1,000 in 2006), and you have $5,000 of section 1231 losses from 2002 left to recapture ($6,000 minus the $1,000 recaptured this year).
Figuring the Prior Year Losses
You had a net section 1231 loss if section 1231 losses exceeded section 1231 gains. Gains are included only to the extent taken into account in figuring gross income. Losses are included only to the extent taken into account in figuring taxable income except that the limitation on capital losses does not apply.
For recordkeeping purposes, if line 9 is zero, the amount on line 7 is the amount of net section 1231 loss recaptured in 2006. If line 9 is more than zero, you have recaptured all of your net section 1231 losses from prior years.
Enter the gain from line 9 as a long-term capital gain on the Schedule D for the return you are filing.
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.
If you received ordinary income from a sale or other disposition of your interest in a partnership, see Pub. 541, Partnerships.
Report other ordinary gains and losses, including gains and losses from property held 1 year or less, on this line.
Deduct the loss from a qualifying abandonment of business or investment property on line 10. See Abandonments in Pub. 544 for more information.
Report on line 10 all gains and losses from sales and dispositions of securities or commodities held in connection with your trading business, including gains and losses from marking to market securities and commodities held at the end of the tax year (see Traders Who Made a Mark-To-Market Election). Attach to your tax return a statement, using the same format as line 10, showing the details of each transaction. Separately show and identify securities or commodities held and marked to market at the end of the year. On line 10, enter "Trader--see attached" in column (a) and the totals from the statement in columns (d), (f), and (g). Also, see the instructions for line 1 on page 4.
Report on line 10 ordinary losses from the sale or exchange (including worthlessness) of stock in a small business investment company operating under the Small Business Investment Act of 1958. See section 1242.
Also attach a statement that includes the name and address of the small business investment company and, if applicable, the reason the stock is worthless and the approximate date it became worthless.
Individuals report ordinary losses from the sale or exchange (including worthlessness) of section 1244 (small business) stock on line 10.
To qualify as section 1244 stock, all six of the following requirements must be met.
The maximum amount that may be treated as an ordinary loss is $50,000 ($100,000 if married filing jointly). Special rules may limit the amount of your ordinary loss if (a) you received section 1244 stock in exchange for property with a basis in excess of its FMV or (b) your stock basis increased because of contributions to capital or otherwise. See Pub. 550 for more details. Report on Schedule D losses in excess of the maximum amount that may be treated as an ordinary loss (and all gains) from the sale or exchange of section 1244 stock.
Keep adequate records to distinguish section 1244 stock from any other stock owned in the same corporation.
You must complete this line if there is a gain on Form 4797, line 3; a loss on Form 4797, line 11; and a loss on Form 4684, line 38, column (b)(ii). Enter on this line the smaller of the loss on Form 4797, line 11, or the loss on Form 4684, line 38, column (b)(ii). To figure which loss is smaller, treat both losses as positive numbers. Enter the part of the loss from income-producing property on Schedule A (Form 1040), line 27, and the part of the loss from property used as an employee on Schedule A (Form 1040), line 22.
Tip: Partnerships and S corporations, see Partnerships and S corporations at the beginning of the Specific Instructions. Partners and shareholders reporting a disposition of section 179 property which was separately reported to you on Schedule K-1 (Form 1065 or 1120S), see Partners and S corporation shareholders at the beginning of the Specific Instructions.
Generally, for property held 1 year or less, do not complete Part III; instead use Part II. For exceptions, see the chart on page 1.
Use Part III to figure recapture of depreciation and certain other items that must be reported as ordinary income on the disposition of property. Fill out lines 19 through 24 to determine the gain on the disposition of the property. If you have more than four properties to report, use additional forms. For more details on depreciation recapture, see Pub. 544.
Note. If the property was sold on the installment sale basis, see the Instructions for Form 6252 before completing Part III. Also, if you have both installment sales and noninstallment sales, you may want to use separate Forms 4797, Part III, for the installment sales and the noninstallment sales.
The gross sales price includes money, the FMV of other property received, and any existing mortgage or other debt the buyer assumes or takes the property subject to. For casualty or theft gains, include insurance or other reimbursement you received or expect to receive for each item. Include on this line your insurance coverage, whether or not you are submitting a claim for reimbursement.
For section 1255 property disposed of in a sale, exchange, or involuntary conversion, enter the amount realized. For section 1255 property disposed of in any other way, enter the FMV.
Reduce the cost or other basis of the property by the amount of any enhanced oil recovery credit or disabled access credit. However, do not adjust the cost or other basis for any of the items taken into account on line 22.
Complete the following steps to figure the amount to enter on line 22.
Step 1. Add the following amounts.
Step 2. From the Step 1 total, subtract the following amounts.
You may have to include depreciation allowed or allowable on another asset (and refigure the basis amount for line 21) if you use its adjusted basis in determining the adjusted basis of the property described on line 19. An example is property acquired by a trade-in. See Regulations section 1.1245-2(a)(4). Also, see Like-Kind Exchanges under Nontaxable Exchanges in chapter 1 of Pub. 544.
For section 1255 property, enter the adjusted basis of the section 126 property disposed of.
Tip: New recapture rules apply to the disposition of amortizable section 197 intangibles after August 8, 2005. If you dispose of more than one amortizable section 197 intangible (as defined in section 197(c)) in a single transaction (or a series of related transactions), all of these intangibles are treated as one section 1245 property. However, if the adjusted basis of any amortizable section 197 intangible exceeds its fair market value, this rule does not apply to that intangible. See section 1245(b)(9) for more information.
Section 1245 property is property that is depreciable (or amortizable under section 185 (repealed), 197, or 1253(d)(2) or (3) (as in effect before the enactment of P.L. 103-66)) and is one of the following.
Exceptions and limits. See section 1245(b) for exceptions and limits involving the following.
Special rules. See the following sections for special rules.
Section 1250 property is depreciable real property (other than section 1245 property). Generally, section 1250 recapture applies if you used an accelerated depreciation method or you claimed the 30% or 50% special depreciation allowance, or the commercial revitalization deduction.
Tip: Section 1250 recapture does not apply to dispositions of the following MACRS property placed in service after 1986 (or after July 31, 1986, if elected). You are not required to calculate additional depreciation for these properties on line 26.
ACRS property. Real property depreciable under ACRS (pre-1987 rules) is subject to recapture under section 1245, except for the following, which are treated as section 1250 property.
Exceptions and limits. See section 1250(d) for exceptions and limits involving the following.
Special rules. Special rules apply in the following cases.
Line 26a
Enter the additional depreciation for the period after 1975. Additional depreciation is the excess of actual depreciation (including any 30% or 50% special depreciation allowance, or commercial revitalization deduction) over depreciation figured using the straight line method. For this purpose, do not reduce the basis under section 50(c)(1) (or the corresponding provision of prior law) to figure straight line depreciation. Also, if you claimed a commercial revitalization deduction, figure straight-line depreciation using the property's applicable recovery period under section 168.
Line 26b
Generally, use 100% as the percentage for this line. However, for low-income rental housing described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), see that section for the percentage to use.
Line 26d
Enter the additional depreciation after 1969 and before 1976. If straight line depreciation exceeds the actual depreciation for the period after 1975, reduce line 26d by the excess. Do not enter less than zero on line 26d.
Line 26f
The amount the corporation treats as ordinary income under section 291 is 20% of the excess, if any, of the amount that would be treated as ordinary income if such property were section 1245 property, over the amount treated as ordinary income under section 1250. If the corporation used the straight line method of depreciation, the ordinary income under section 291 is 20% of the amount figured under section 1245.
Partnerships (other than electing large partnerships) skip this section. Partners must enter on the applicable lines of Part III amounts subject to section 1252 according to instructions from the partnership.
You may have ordinary income on the disposition of certain farmland held more than 1 year but less than 10 years.
Refer to section 1252 to determine if there is ordinary income on the disposition of certain farmland for which deductions were allowed under sections 175 (soil and water conservation) and 182 (land clearing) (repealed). Skip line 27 if you dispose of such farmland during the 10th or later year after you acquired it.
Gain from disposition of certain farmland is subject to ordinary income rules under section 1252 before the application of section 1231 (Part I).
Enter 100% of line 27a on line 27b except as follows.
If you had a gain on the disposition of oil, gas, or geothermal property placed in service before 1987, treat all or part of the gain as ordinary income. Include on line 22 of Form 4797 any depletion allowed (or allowable) in determining the adjusted basis of the property.
If you had a gain on the disposition of oil, gas, geothermal, or other mineral properties (section 1254 property) placed in service after 1986, you must recapture all expenses that were deducted as intangible drilling costs, depletion, mine exploration costs, and development costs under sections 263, 616, and 617.
Exception. Property placed in service after 1986 and acquired under a written contract entered into before September 26, 1985, and binding at all times thereafter is treated as placed in service before 1987.
Note. A corporation that is an integrated oil company completes line 28a by treating amounts amortized under section 291(b)(2) as deductions under section 263(c).
Line 28a
If the property was placed in service before 1987, enter the total expenses after 1975 that:
If the property was placed in service after 1986, enter the total expenses that:
If you disposed of a portion of section 1254 property or an undivided interest in it, see section 1254(a)(2).
Use 100% if the property is disposed of less than 10 years after receipt of payments excluded from income. Use 100% minus 10% for each year, or part of a year, that the property was held over 10 years after receipt of the excluded payments. Use zero if 20 years or more.
Line 29b
If any part of the gain shown on line 24 is treated as ordinary income under sections 1231 through 1254 (for example, section 1252), enter the smaller of (a) line 24 reduced by the part of the gain treated as ordinary income under the other provision or (b) line 29a.
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.
If you have listed property that you placed in service in a prior year and the business use decreased to 50% or less this year, figure the amount to be recaptured under section 280F(b)(2). Complete column (b), lines 33 through 35. See Pub. 463, Travel, Entertainment, Gift, and Car Expenses, for more details on recapture of excess depreciation.
Note. If you have more than one property subject to the recapture rules, figure the recapture amounts separately for each property. Show these calculations on a separate statement and attach it to your tax return.
In column (a), enter the section 179 expense deduction you claimed when the property was placed in service. In column (b), enter the depreciation allowable on the property in prior tax years (plus any section 179 expense deduction you claimed when the property was placed in service).
In column (a), enter the depreciation that would have been allowable on the section 179 property from the year the property was placed in service through (and including) the current year. See Pub. 946, How To Depreciate Property.
In column (b), enter the depreciation that would have been allowable if the property had not been used more than 50% in a qualified business. Figure the depreciation from the year it was placed in service up to (but not including) the current year. See Pub. 463 and Pub. 946.
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. For example, if you took the deduction on Schedule C (Form 1040), report the recapture amount as other income on Schedule C (Form 1040).
Note. If you filed Schedule C-EZ (Form 1040) or F (Form 1040) and the property was used in both your trade or business and for the production of income, the portion of the recapture amount attributable to your trade or business is subject to self-employment tax. Allocate the amount on line 35 to the appropriate schedules.
Be sure to increase your basis in the property by the recapture amount.
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.
The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is shown below.
Recordkeeping 35 hr., 23 min. Learning about the law or the form 8 hr., 20 min. Preparing, copying, assembling, and sending the form to the IRS 9 hr., 17 min.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.