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Form 4797

Business real estate gains

What is form 4797?

Form 4797 is a tax form required to be filed with the Internal Revenue Service (IRS) for any gains realized from the sale or transfer of business property, including but not limited to properties that generate rental income, and properties that are used for industrial, agricultural, or extractive resources.  Always consult a professional tax adviser to determine if you are required to file a form 4797 or not.

 

form 4797 theme

 

Classification of property under form 4797

It is important to carefully check the IRS website (https://www.irs.gov/) to see if your property is considered a business property or not, and whether it requires the form to be filled out.

Possible exemptions include primary residences which have been used partially for earning business income but have the primary purpose of being a residence.

This may be the case for many entrepreneurs, independent contractors, and others who generate their income from home.

 

Depreciation

Based on the use and classification of the property, depreciation may be taken into account and be used to lower the book value of the property, and hence reduce the taxable gain.

 

Tax event for shareholders

Depending on the ownership structure and setup of the investment, other shareholders, partners, or investors may also experience a tax event when the property is sold and a form 4797 is filed.

Be sure to consult a professional tax advisor to determine the impact of a sale of property on any other shareholders or investors.

 

Additional resources

Thank you for reading CFI’s introductory guide to understanding what form 4797 is and why it matters.  It’s always important to get professional tax advice and ensure you’re fully compliant with all IRS regulations and requirements.

CFI’s mission is to help you become a world-class financial analyst.  With that goal in mind, these additional resources will help you on your way:

  • Tax shields
  • Interest tax shields
  • Tax havens
  • Property plant and equipment

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!