Introduction

When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income or capital gain (under the rules for section 1231 transactions). Ordinary income is taxed at the same rate as wages and interest income. Capital gain is generally taxed at lower rates.

When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. Similar rules apply to the sale of property on which soil and water conservation expenses have been deducted or government cost-sharing payments have been received.

Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they should first be reported.

Publication 225 (2025) Chapter 9 Dispositions of Property Used in Farming 59

Topics This chapter discusses:

• Section 1231 gains and losses

• Depreciation recapture

• Other gains

Useful Items You may want to see:

Publication

544

544 Sales and Other Dispositions of Assets

Form (and Instructions)

4797

4797 Sales of Business Property

See How To Get Tax Help for information about getting publications and forms.