Part I — 2025 Inst 4797 (PDF)

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.

Sales or exchanges of real or depreciable property used in a trade or business and held for more than 1 year. To figure the holding period, begin counting on the day after you received the property and include the day you disposed of it.
Inventory or property held primarily for sale to customers;
Patents; inventions; models or designs (whether or not patented); secret formulas or processes; copyrights; literary, musical, or artistic compositions; letters or memoranda; or similar property (a) created by your personal efforts, (b) prepared or produced for you (in the case of letters, memoranda, or similar property), or (c) received from someone who created them or for whom they were created, as mentioned in (a) or (b), in a way that entitled you to the basis of the previous owner (such as by gift); or
U.S. Government publications, including the Congressional Record, that you:

Received from the government other than by purchase at the normal sales price; or
Received from someone who had received it from the government, other than by purchase at the normal sales price, in a way that entitled you to the previous owner’s basis (such as by gift).

Cutting of timber that the taxpayer elects to treat as a sale or exchange under section 631(a).
Disposal of timber with a retained economic interest that is treated as a sale, or an outright sale of timber, under section 631(b).
Disposal of coal (including lignite) or domestic iron ore with a retained economic interest that is treated as a sale under section 631(c).
Sales or exchanges of cattle and horses, regardless of age, used in a trade or business for draft, breeding, dairy, or sporting purposes and held for 24 months or more from acquisition date.
Sales or exchanges of livestock other than cattle and horses, regardless of age, used in a trade or business for draft, breeding, dairy, or sporting purposes and held for 12 months or more from acquisition date.

Note. Livestock does not include poultry, chickens, turkeys, pigeons, geese, other birds, fish, frogs, reptiles, etc.

Sales or exchanges of certain unharvested crops. See section 1231(b)(4).
Involuntary conversions of trade or business property or capital assets held more than 1 year in connection with a trade or business or a transaction entered into for profit. These conversions may result from (a) part or total destruction, (b) theft or seizure, or (c) requisition or condemnation (whether threatened or carried out). However, if any recognized losses were from involuntary conversions from fire, storm, shipwreck, or other casualty or from theft and the losses exceed the recognized gains from the conversions, do not include any gains or losses from such conversions when figuring your net section 1231 gains and section 1231 losses. Transactions to which section 1231 does not apply. Section 1231 transactions do not include sales or exchanges of:

Line 7 Partners and S corporation shareholders receive a Schedule K-1 (Form 1065 or Form 1120-S), which includes amounts that must be reported on Form 4797. Following the Instructions for Schedule K-1, enter any amounts from your Schedule K-1 (Form 1120-S), 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 have nonrecaptured section 1231 losses from prior years, see the instructions for line 8, later. If the amount from line 7 is a gain and you did not have nonrecaptured section 1231 losses from prior years, enter the gain from line 7 as a long-term capital gain on the Schedule D for the return you are filing.

Line 8 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.

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.

Your net section 1231 gain on line 7 is treated as ordinary income to the extent of your nonrecaptured section 1231 losses. See the example below.

Example. You had net section 1231 losses of $4,000 and $6,000 in 2020 and 2021, respectively, and net section 1231 gains of $3,000 and $2,000 in 2024 and 2025, respectively. The 2025 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 2025 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.

6 Instructions for Form 4797 (2025)

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.

Gross sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
Cost or other basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
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.
Adjusted basis. Subtract line 3e from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
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 20, and complete the rest of Form 4684.

Lines 1, 2, 3a, and 3b. Enter these amounts from Schedule K-1 (Form 1065 or 1120-S).

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 1 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.

For recordkeeping purposes, the $4,000 loss from 2020 is all recaptured ($3,000 in 2024 and $1,000 in 2025), and you have $5,000 of section 1231 losses from 2021 left to recapture ($6,000 minus the $1,000 recaptured this year).

Line 9 For recordkeeping purposes, if line 9 is zero, the amount on line 7 is the amount of net section 1231 loss recaptured

in 2025. If line 9 is more than zero, you have recaptured all of your net section 1231 losses from prior years.

If line 9 is more than zero, enter the amount from line 8 on line 12. Enter the gain from line 9 as a long-term capital gain on the Schedule D for the return you are filing.

Instructions for Form 4797 (2025) 7