Form 4797 - Sales of Business Property
- Updated April 03, 2025 - 11.00 AM - Admin, Tax990
Table of Contents
What is IRS Form 4797?
IRS Form 4797 is used to report the sale, exchange, or involuntary conversion of business property. This form calculates gains and losses from the disposal of property, which is essential for determining taxable income. It’s particularly relevant for businesses, tax-exempt organizations, and individuals who have sold or exchanged business property during the tax year.
Properly completing Form 4797 helps ensure that the appropriate amount of tax is paid on these transactions.
When Should I Attach Form 4797 to Form 990-T?
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Tax-exempt organizations that file 990-T to report unrelated business income can attach Form 4707 to report the sale or exchange of business property as part of their unrelated business income (UBI).
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This situation arises when the organization sells, exchanges, or disposes of property that is used in an unrelated business activity, and the transaction results in gain or loss that needs to be reported on Form 990-T.
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If your organization qualifies for unrelated business income tax (UBIT) due to property sales, ensure you attach Form 4797 to your Form 990-T when filing. This will allow you to properly account for the taxable gains or losses related to business property disposals.
What Information is Required to Complete Form 4797?
While filling out Form 4797, you must require the following information:
Basic information about the organization
Details regarding sales or exchange of property
Gains (including gain from disposition of property) and losses
Recapture amounts
How to Complete Form 4797?
Form 4797 consists of several parts, each addressing different types of sales or exchanges of business property. Here’s a breakdown of each section, highlighting important points and specific details for 990-T filers:
Part I - Sales or Exchanges of Business Property
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This part covers the sale or exchange of property used in your trade or business, including real estate and depreciable assets.
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Business property includes:
Real estate used in the business.
Depreciable personal property like machinery, equipment, and vehicles.
Property used in an unrelated trade or business if the sale results in unrelated business taxable income (UBTI).
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The details you need to report include the description of the property, the dates of acquisition and sale, sales price, adjusted basis, and depreciation deductions taken.
Specific to Form 990-T Filers: Tax-exempt organizations filing Form 990-T must include any gain or loss from property sales in the calculation of UBTI. Attach Form 4797 to Form 990-T to ensure accurate reporting of any taxable gains or losses from business property disposals.
Part II - Ordinary Gains and Losses
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This part is used to report ordinary gains and losses from the sale or exchange of business property, specifically properties subject to depreciation recapture under Section 1245 (personal property) or Section 1250 (real property).
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Ordinary gains and losses arise when the sales price exceeds or falls short of the property's adjusted basis after considering depreciation taken.
Specific to Form 990-T Filers: For tax-exempt organizations, any ordinary income resulting from depreciation recapture must be included in the calculation of UBTI. This income is taxable and should be reported on Form 990-T.
Part III - Gain from the Sale of Property Used in a Trade or Business
This part covers the sale of Section 1231 property, which includes business assets like real estate and certain depreciable property. The gain may qualify for capital gain treatment, which is generally more favorable than ordinary income.
To qualify, the property must be used in the business for more than one year and be held for trade or business purposes.
Specific to Form 990-T Filers: If the gain from the sale of Section 1231 property qualifies for capital gain treatment, it may be excluded from UBTI. However, this exclusion is subject to specific rules, so be sure to review the criteria carefully when completing Form 990-T.
Part IV - Sales of Section 1245 Property
This part is used to report the sale of Section 1245 property, which includes depreciable personal property such as machinery, equipment, and vehicles. The gain from the sale of such property is subject to depreciation recapture, which is taxed as ordinary income.
Specific to Form 990-T Filers: Any recaptured depreciation is taxable as ordinary income and must be reported as part of UBTI on Form 990-T. This affects the tax-exempt organization’s tax liability, so careful reporting is essential.
Part V - Sales of Section 1250 Property
This part addresses the sale of Section 1250 property, typically depreciable real estate. Like Section 1245 property, the gain from the sale may be subject to depreciation recapture, but the recapture rules for real property are somewhat different.
Specific to Form 990-T Filers: Similar to Section 1245 property, depreciation recapture for Section 1250 property is taxed as ordinary income and must be included in UBTI. Report the recaptured depreciation accurately to ensure proper tax reporting on Form 990-T.
Part VI - Other Sales or Exchanges
This part is for reporting sales of property that don't fall under the previous categories, including the sale of property not used in a trade or business or property involved in an involuntary conversion (e.g., loss due to theft or natural disaster).
Specific to Form 990-T Filers: For Form 990-T filers, gains or losses from sales reported in this part should be carefully reviewed for UBTI implications. Depending on the type of property and transaction, the sale may affect the unrelated business taxable income.
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Tax990, an IRS-authorized e-file provider, offers a range of helpful features that allow you to attach your Form 4797 with the Form 990-T seamlessly.
With our Form-Based filing option, you can enter the required data directly on your Form 990-T & attach 4797.
Our Internal Audit system reviews your completed form for any errors to ensure accurate returns.
In case of any issues, you can get in touch with our Dedicated Support Team for instant solutions.
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