Part III — 2025 Inst 4797 (PDF)

Partners and shareholders reporting a disposition

TIP of section 179 property which was separately

reported to you on Schedule K-1 (Form 1065 or 1120-S), see Partners and S corporation shareholders at the beginning of the Specific Instructions, earlier.

Generally, for property held 1 year or less, do not complete Part III; instead, use Part II. For exceptions, see the chart Where To Make First Entry for Certain Items Reported on This Form, earlier.

Use Part III to figure recapture of depreciation and other items that must be reported as ordinary income on the disposition of certain property. Complete 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.

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.

Note. If you sold or otherwise disposed of property for which you elected to treat as an expense the costs of certain real property, special rules apply. See section 179. For special rules for determining gain or loss and determining if the basis of the property is treated as section 1245 or section 1250 property, see Pub. 544.

Line 20 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.

Line 21 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.

Line 22 Complete the following steps to figure the amount to enter on line 22.

Step 1. Add amounts such as the following.

Deductions allowed or allowable for depreciation (including any special depreciation allowance (see the Instructions for Form 4562)), amortization, depletion, or preproductive expenses (see Disposition of plants in chapter 9 of Pub. 225).
The section 179 expense deduction.
The commercial revitalization deduction for buildings placed in service before 2010.
The downward basis adjustment under section 50(c) (or the corresponding provision of prior law).
The deduction for qualified clean-fuel vehicle property or refueling property.
Deductions claimed under section 190, 193, or 1253(d) (2) or (3) (as in effect before the enactment of P.L. 103-66).
The basis reduction for any qualified plug-in electric or qualified electric vehicle credit.
The basis reduction for the employer-provided childcare facility credit.
Any applicable deduction for qualified energy efficient commercial building property. See section 179D.
The basis reduction for the alternative motor vehicle credit.
Any applicable basis reduction for the alternative fuel vehicle refueling property credit.
Any applicable basis adjustment for advanced manufacturing investment credit property. See section 48D(d)(5).

Step 2. From the Step 1 total, subtract amounts such as the following.

Any investment credit recapture amount if the basis of the property was reduced in the tax year the property was placed in service under section 50(c)(1) (or the corresponding provision of prior law). See section 50(c)(2) (or the corresponding provision of prior law).
Any section 179 or 280F(b)(2) recapture amount included in gross income in a prior tax year because the business use of the property decreased to 50% or less.
Any qualified clean-fuel vehicle property or refueling property deduction you were required to recapture.
Any basis increase for qualified plug-in electric or qualified electric vehicle credit recapture.
Any basis increase for recapture of the employer-provided childcare facility credit.
Any basis increase for recapture of the alternative motor vehicle credit.
Any basis increase for recapture of the alternative fuel vehicle refueling property credit.
Any qualified disaster expense recapture.

Instructions for Form 4797 (2025) 9

Any applicable recapture of the advanced manufacturing investment credit.

For more information on amounts recaptured as depreciation allowed or allowable, see chapter 3 of Pub. 544. 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.

Line 23 For section 1255 property, enter the adjusted basis of the section 126 property disposed of.

Line 25

Gifts.
Transfers at death.
Certain tax-free transactions.
Certain like-kind exchanges, involuntary conversions, etc.

As a research facility in these activities.
For the bulk storage of fungible commodities (including commodities in a liquid or gaseous state) used in these activities.

A single purpose agricultural or horticultural structure (as defined in section 168(i)(13)).
A storage facility (not including a building or its structural components) used in connection with the distribution of petroleum or any primary petroleum product.
Any railroad grading or tunnel bore (as defined in section 168(e)(4)).

Exceptions and limits. Special rules apply to the following.

Section 1245 property. Section 1245 property is property that is depreciable (or amortizable or treated as amortizable under, for example, section 181, 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.

Personal property.
Elevators and escalators placed in service before 1987.
Real property (other than property described under tangible real property, later) adjusted for the following.
Timber property.
Dispositions of amortizable section 197 intangibles. For more information, see section 1245(b). Also, see Pub.

Property distributed by a partnership to a partner.
Transfers to tax-exempt organizations where the property will be used in an unrelated business.

Amortization of certified pollution control facilities.
The section 179 expense deduction.
Deduction for clean-fuel vehicles and certain refueling property.
Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations.

Line 26

Deduction for certain qualified refinery property, if in effect before the repeal by the Tax Increase Prevention Act of 2014. (Repealed by P.L. 113-295, section 221(a)(34) (A), except with regards to deductions made prior to December 19, 2014.)

Section 1250 property. 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 any special depreciation allowance, or the commercial revitalization deduction.

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.

Any applicable deduction for qualified energy efficient commercial building property. See section 179D.
Deduction for election to expense qualified advanced mine safety equipment property.
Amortization of railroad grading and tunnel bores if in effect before the repeal by the Revenue Reconciliation Act of 1990. (Repealed by P.L. 99-514, Tax Reform Act of 1986, section 242(a).)
Certain expenditures for childcare facilities if in effect before the repeal by P.L. 101-508, section 11801(a) (13). (Repealed by P.L. 101-508, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13), except with regards to deductions made prior to November 5, 1990.)

27.5-year (30- or 40-year, if elected or required) residential rental property (except for 27.5-year qualified New York Liberty Zone property acquired after September 10, 2001).
22-, 31.5-, or 39-year (or 40-year, if elected or required) nonresidential real property (except for 39-year qualified New York Liberty Zone property acquired after September 10, 2001, and property for which you elected to claim a commercial revitalization deduction).

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.

Expenditures to remove architectural and transportation barriers to the handicapped and elderly.
Deduction for qualified tertiary injectant expenses.

15-, 18-, or 19-year real property and low-income housing that is residential rental property.

Certain reforestation expenditures.

Tangible real property (except buildings and their structural components) if it is used in any of the following ways.

As an integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, or certain public utility services.

15-, 18-, or 19-year real property and low-income housing that is used mostly outside the United States.
15-, 18-, or 19-year real property and low-income housing for which a straight line election was made.
Low-income rental housing described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B). See the instructions for line 26b, later.

10 Instructions for Form 4797 (2025)

Exceptions and limits. See section 1250(d) for exceptions and limits involving the following.

Gifts.
Transfers at death.
Certain tax-free transactions.
Certain like-kind exchanges, involuntary conversions, etc.
Property distributed by a partnership to a partner.
Disposition of qualified low-income housing.
Transfers of property to tax-exempt organizations if the property will be used in an unrelated business.
Dispositions of property as a result of foreclosure proceedings.

Special rules. Special rules apply in the following cases.

For additional depreciation attributable to rehabilitation expenditures, see section 1250(b)(4).
If substantial improvements have been made, see section 1250(f).

Line 26a

Enter the additional depreciation for the period after 1975. Additional depreciation is the excess of actual depreciation (including any 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.

Line 27 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.

See section 1252 to determine if there is ordinary income on the disposition of certain farmland for which deductions were allowed under section 175 (relating to soil and water conservation).

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.

80% if the farmland was disposed of within the 6th year after it was acquired.
60% if disposed of within the 7th year.
40% if disposed of within the 8th year.
20% if disposed of within the 9th year.

Skip line 27 if you dispose of such farmland during the 10th or later year after you acquired it.

Line 28 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 Form 4797, line 22, 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

The deduction under section 611 that reduced the adjusted basis of such property.

If the property was placed in service before 1987, enter the total expenses after 1975 that:

Were deducted by the taxpayer or any other person as intangible drilling and development costs under section 263(c) (except previously expensed mining costs that were included in income upon reaching the producing state), and
Would have been reflected in the adjusted basis of the property if they had not been deducted.

If the property was placed in service after 1986, enter the total expenses that:

Were deducted under section 263, 616, or 617 by the taxpayer or any other person; and
But for such deduction, would have been included in the basis of the property; plus

Instructions for Form 4797 (2025) 11

If you disposed of a portion of section 1254 property or an undivided interest in it, see section 1254(a)(2).

Line 29a 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.