Form 4797
Candlefocus EditorThe information required on Form 4797 includes a description of the property, purchase date, sale or transfer date, cost of purchase, gross sales price, and the depreciation amount taken by the taxpayer. It is important to note that the form covers only gains made on the sale or exchange of business property; it does not apply to losses, capital gains from the sale of personal property, or installment sales.
In completing Form 4797, the taxpayer first needs to determine the highest of the three amounts: the original purchase price, the adjusted basis of the property, or the fair market value. This amount is known as the “cost” of the property, and it will be used to calculate the gain or loss from the sale or transfer.
Next, the taxpayer must calculate depreciation taken on the property for the sale year and for the previous seven years. This will be subtracted from the original cost of the business property to arrive at the “adjusted basis.” The adjusted basis is the starting point for determining the gain or loss from the sale.
The final step is to compare the sale price of the property to the adjusted basis, which will determine the taxable gain or loss on the sale. If the sale is a gain, the taxable gain is the sales price minus the adjusted basis. If the sale is a loss, the taxable loss is the adjusted basis minus the sales price.
Form 4797 takes into account necessary tax deductions and credits, and many taxpayers rely on the form to minimize their tax liability on the sale of business property. It is a tool for taxpayers to use to ensure the accuracy and completeness of their tax filings.
Form 4797 is an important form for anyone who has sold or transferred business property during the year, and its specific requirements must be followed to ensure the accuracy of their taxes. By understanding the various components of the form, taxpayers can better calculate their gains or losses on the sale of business property and accurately prepare their tax returns.