Part II

If a transaction is not reportable in Part I or Part III and the property is not a capital asset reportable on Schedule D, report the transaction in Part II.

If you receive ordinary income from a sale or other disposition of your interest in a partnership, see Pub. 541, Partnerships.

Line 10

Report other ordinary gains and losses, including gains and losses from property held 1 year or less, on this line.

Securities or Commodities Held by a Trader Who Made a Mark-To-Market Election

Report on line 10 all gains and losses from sales and dispositions of securities or commodities held in connection with your trading business, including gains and losses from marking to market securities and commodities held at the end of the tax year (see Traders Who Made a Mark-To-Market Election on page 2). Attach to your tax return a statement, using the same format as line 10, showing the details of each transaction. Separately show and identify securities or commodities held and marked to market at the end of the year. On line 10, enter Trader - see attached in column (a) and the totals from the statement in columns (d), (f), and (g). Also, see the instructions for line 1 on page 3.

Small Business Investment Company Stock

Report on line 10 ordinary losses from the sale or exchange (including worthlessness) of stock in a small business investment company operating under the Small Business Investment Act of 1958. See section 1242.

Section 1244 (Small Business) Stock

Individuals report ordinary losses from the sale or exchange (including worthlessness) of section 1244 (small business) stock on line 10.

To qualify as section 1244 stock, all six of the following requirements must be met.

1. You acquired the stock after June 30, 1958, upon original issuance of the shares from a domestic corporation (or the stock was acquired by a partnership in which you were a partner continuously from the date the stock was issued until the time of the loss).
2. If the stock was issued before November 7, 1978, it was issued under a written plan that met the requirements of Regulations section 1.1244(c)-1(f), and when that plan was adopted, the corporation was treated as a small business corporation under Regulations section 1.1244(c)-2(c).
3. If the stock was issued after November 6, 1978, the corporation was treated as a small business corporation at the time the stock was issued under Regulations section 1.1244(c)-2(b). To be treated as a small business corporation, the total amount of money and other property received by the corporation for its stock as a contribution to capital and paid-in surplus generally may not exceed $1 million.
4. The stock was issued for money or other property (excluding stock or securities).
5. The corporation, for its 5 most recent tax years ending before the date of the loss, derived more than 50% of its gross receipts from sources other than royalties, rents, dividends, interest, annuities, and gains from sales and exchanges of stocks or securities. (If the corporation was in existence for at least 1 tax year but fewer than 5 tax years ending before the date of the loss, the 50% test applies for the tax years ending before that date. If the corporation was not in existence for at least 1 tax year ending before the date of the loss, the 50% test applies for the entire period ending before that date.) The 50% test does not apply if the corporation's deductions (other than the net operating loss and dividends-received deductions) exceeded its gross income during the applicable period. But this exception to the 50% test applies only if the corporation was largely an operating company within the 5 most recent tax years ending before the date of the loss (or, if less, the entire period the corporation was in existence).
6. If the stock was issued before July 19, 1984, it must have been common stock.

The maximum amount that may be treated as an ordinary loss is $50,000 ($100,000 if married filing jointly). Special rules may limit the amount of your ordinary loss if (a) you received section 1244 stock in exchange for property with a basis in excess of its FMV or (b) your stock basis increased because of contributions to capital or otherwise. See Pub. 550, Investment Income and Expenses, for more details. Report on Schedule D losses in excess of the maximum amount that may be treated as an ordinary loss (and all gains) from the sale or exchange of section 1244 stock.

Keep adequate records to distinguish section 1244 stock from any other stock owned in the same corporation.

Line 17

Enter any recapture of section 179 expense deduction included on Schedule K-1 (Form 1065), line 25, or Schedule K-1 (Form 1120S), line 23, but only if it is due to a disposition. Include it only to the extent that you took a deduction for it in an earlier year. See the instructions for Part IV if you have section 179 recapture because the business use of the property decreased to 50% or less.

Line 18b(1)

You must complete this line if there is a gain on Form 4797, line 3; a loss on Form 4797, line 11; and a loss on Form 4684, line 35, column (b)(ii). Enter on this line the smaller of the loss on Form 4797, line 11, or the loss on Form 4684, line 35, column (b)(ii). To figure which loss is smaller, treat both losses as positive numbers. Enter the part of the loss from income-producing property on Schedule A (Form 1040), line 27, and the part of the loss from property used as an employee on Schedule A (Form 1040), line 22.

Part III

Generally, for property held 1 year or less, do not complete Part III; instead use Part II. For exceptions, see the chart on page 1.

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

Note:   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.

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 diesel-powered highway vehicle credit, enhanced oil recovery credit, or disabled access credit.

However, do not reduce the cost or other basis on this line by any of the following amounts.

• Deductions allowed or allowable for depreciation (including the 30% special depreciation allowance), amortization, depletion, or preproductive expenses.
• The section 179 expense deduction.
• The commercial revitalization deduction.
• 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 the qualified electric vehicle credit.

Instead, include these amounts on line 22. They will be used to determine the property's adjusted basis on line 23.

Line 22

For a taxpayer other than a partnership or an S corporation, complete the following steps to figure the amount to enter on line 22.

Step 1.   Add the following amounts.

• Deductions allowed or allowable for depreciation (including the 30% special depreciation allowance), amortization, depletion, or preproductive expenses.
• The section 179 expense deduction.
• The commercial revitalization deduction.
• 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 the qualified electric vehicle credit.

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

• 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 because the property ceased to be eligible for the deduction.
• Any basis increase for qualified electric vehicle credit recapture.

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. An example is property acquired by a trade-in. See Regulations section 1.1245-2(a)(4).

Partnerships enter the deductions allowed or allowable for depreciation, amortization, or depletion on line 22. Enter the section 179 expense deduction on Form 1065, Schedule K, line 24 (unless the partnership is an electing large partnership). Partnerships must make the basis adjustment required under section 50(c) (or the corresponding provision of prior law). Partners adjust the basis of their interest in the partnership to take into account the basis adjustments made at the partnership level.

S corporations enter the deductions allowed or allowable for depreciation, amortization, or depletion on line 22. Enter the section 179 expense deduction on Form 1120S, Schedule K, line 21, but only if the corporation disposed of property acquired in a tax year beginning after 1982. S corporations must make the basis adjustment required under section 50(c) (or the corresponding provision of prior law). Shareholders adjust the basis in their stock in the corporation to take into account the basis adjustments made at the S corporation level under section 50(c) (or the corresponding provision of prior law).

Line 23

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

Line 25

Section 1245 property is property that is depreciable (or amortizable under section 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 below) subject to amortization or deductions under section 169, 179, 179A, 185 (repealed), 188 (repealed), 190, 193, or 194.
• Tangible real property (except buildings and their structural components) if it is used in any of the following ways.
  1. As an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, or certain public utility services.
  2. As a research facility in these activities.
  3. 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)).

See section 1245(b) for exceptions and limits involving the following.

• Gifts.
• Transfers at death.
• Certain tax-free transactions.
• Certain like-kind exchanges, involuntary conversions, etc.
• Exchanges to comply with SEC orders.
• Property distributed by a partnership to a partner.
• Transfers to tax-exempt organizations where the property will be used in an unrelated business.
• Timber property.

See the following sections for special rules.

• Section 1245(a)(4) for player contracts and section 1056(c) for information required from the transferor of a franchise of any sports enterprise if the sale or exchange involves the transfer of player contracts.
• Section 1245(a)(5) (repealed) for property placed in service before 1987, if only a portion of a building is section 1245 recovery property.
• Section 1245(a)(6) (repealed) for qualified leased property placed in service before 1987.

Line 26

Section 1250 property is depreciable real property (other than section 1245 property). Section 1250 recapture applies if you used an accelerated depreciation method or you claimed the 30% special depreciation allowance or commercial revitalization deduction. Section 1250 recapture does not apply to dispositions of the following property placed in service after 1986 (or after July 31, 1986, if elected).

• 27.5-year (or 40-year, if elected) 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) 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).

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.

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

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.
• Exchanges to comply with SEC orders.
• 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 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 30% 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 (other than electing large 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.

Refer to section 1252 to determine if there is ordinary income on the disposition of certain farmland for which deductions were allowed under sections 175 (soil and water conservation) and 182 (land clearing) (repealed). Skip line 27 if you dispose of such farmland during the 10th or later year after you acquired it.

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.

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 line 22 of Form 4797 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

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

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.

Part IV

Column (a)

If you took a section 179 expense deduction for property placed in service after 1986 (other than listed property, as defined in section 280F(d)(4)) and the business use of the property decreased to 50% or less this year, complete column (a) of lines 33 through 35 to figure the recapture amount.

Column (b)

If you have listed property that you placed in service in a prior year and the business use decreased to 50% or less this year, figure the amount to be recaptured under section 280F(b)(2). Complete column (b), lines 33 through 35. See Pub. 463, Travel, Entertainment, Gift, and Car Expenses, for more details on recapture of excess depreciation.

Note:   If you have more than one property subject to the recapture rules, figure the recapture amounts on a separate statement and attach it to your tax return.

Line 33

In column (a), enter the section 179 expense deduction you claimed when the property was placed in service. In column (b), enter the depreciation allowable on the property in prior tax years (plus any section 179 expense deduction you claimed when the property was placed in service).

Line 34

In column (a), enter the depreciation that would have been allowable on the section 179 amount from the year the property was placed in service through (and including) the current year. See Pub. 946, How To Depreciate Property.

In column (b), enter the depreciation that would have been allowable if the property had not been used more than 50% in a qualified business. Figure the depreciation from the year it was placed in service up to (but not including) the current year. See Pub. 463 and Pub. 946.

Line 35

Subtract line 34 from line 33 and enter the recapture amount as other income on the same form or schedule on which you took the deduction. For example, if you took the deduction on Schedule C (Form 1040), report the recapture amount as other income on Schedule C (Form 1040).

Note:   If you filed Schedule C or F (Form 1040) and the property was used in both your trade or business and for the production of income, the portion of the recapture amount attributable to your trade or business is subject to self-employment tax. Allocate the amount on line 35 to the appropriate schedules.

Be sure to increase your basis in the property by the recapture amount.

Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	33 hr., 28 min.
Learning about the law or the form	7 hr., 56 min.
Preparing, copying, assembling, and sending the form to the IRS	8 hr., 50 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.

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