Instructions for Form 4797 Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2))

Transcription

1 2009 Instructions for Form 4797 Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2)) Department of the Treasury Internal Revenue Service Section references are to the Internal Additional Information. See Pub. Revenue Code unless otherwise noted. Other Forms To Use 544, Sales and Other Dispositions of Use Form 4684, Casualties and Assets. Also see Pub. 550, Investment Thefts, to report involuntary Income and Expenses (Including General Instructions conversions from casualties and thefts. Capital Gains and Losses). Use Form 6252, Installment Sale Income, to report the sale of property Special Rules What s New under the installment method. If you sold your home after December Use Form 8824, Like-Kind At-Risk Rules 31, 2008, and used it for business, you Exchanges, to report exchanges of qualifying business or investment If you report a loss on an asset used in may no longer be able to exclude the property for property of a like kind. For an activity for which you are not at risk, gain allocated for periods of exchanges of property used in a trade in whole or in part, see the instructions nonqualified use of the property. See or business (and other noncapital for Form 6198, At-Risk Limitations. Exclusion of Gain on Sale of a Home assets), enter the gain or (loss) from Also, see Pub. 925, Passive Activity Used for Business, on page 2. Form 8824, if any, on and At-Risk Rules. Losses from passive line 5 or line 16. activities are subject first to the at-risk rules and then to the passive activity Purpose of Form If you sold property on which you rules. claimed investment credit, see Form Use Form 4797 to report: 4255, Recapture of Investment Credit, The sale or exchange of: to find out if you must recapture some or all of the credit. 1. Property used in your trade or business; Where To Make First Entry for Certain Items Reported on This Form 2. Depreciable and amortizable (b) (c) property; (a) Held 1 year Held more 3. Oil, gas, geothermal, or other Type of property or less than 1 year mineral properties; and 1 Depreciable trade or business property: 4. Section 126 property. a Sold or exchanged at a gain Part II Part III (1245, 1250) The involuntary conversion (from b Sold or exchanged at a loss Part II Part I other than casualty or theft) of property 2 Depreciable residential rental property: used in your trade or business and a Sold or exchanged at a gain Part II Part III (1250) capital assets held in connection with a b Sold or exchanged at a loss Part II Part I trade or business or a transaction 3 Farmland held less than 10 years upon which soil, entered into for profit. water, or land clearing expenses were deducted: The disposition of noncapital assets a Sold at a gain Part II Part III (1252) (other than inventory or property held b Sold at a loss Part II Part I primarily for sale to customers in the 4 All other farmland Part II Part I ordinary course of your trade or 5 Disposition of cost-sharing payment property business). described in section Part II Part III (1255) The disposition of capital assets not 6 Cattle and horses used in a trade or business for Held less Held 24 reported on Schedule D. draft, breeding, dairy, or sporting purposes: than 24 months months or more The gain or loss (including any related recapture) for partners and S a Sold at a gain Part II Part III (1245) corporation shareholders from certain b Sold at a loss Part II Part I section 179 property dispositions by c Raised cattle and horses sold at a gain Part II Part I partnerships (other than electing large 7 Livestock other than cattle and horses used in a Held less Held 12 partnerships) and S corporations. trade or business for draft, breeding, dairy, or than 12 months The computation of recapture sporting purposes: months or more amounts under sections 179 and a Sold at a gain Part II Part III (1245) 280F(b)(2) when the business use of b Sold at a loss Part II Part I section 179 or listed property c Raised livestock sold at a gain..... Part II Part I decreases to 50% or less. Cat. No T

2 Depreciable Property and connection with a trading business. amount of the gain. Do not take the Under this method of accounting, any exclusion into account when figuring Other Property Disposed of security or commodity held at the end the gain on line 24. If line 22 includes in the Same Transaction of the tax year is treated as sold (and depreciation for periods after May 6, If you disposed of both depreciable reacquired) at its FMV on the last 1997, you cannot exclude gain to the property and other property (for business day of that year. extent of that depreciation. On line 2 of example, a building and land) in the Form 4797, write Section 121 Unless you are a new taxpayer, the same transaction and realized a gain, exclusion, and enter the amount of the election must be made by the due date you must allocate the amount realized exclusion as a (loss) in column (g). (not including extensions) of the tax between the two types of property return for the year prior to the year for based on their respective fair market If the property was held for 1 year or which the election becomes effective. values (FMVs) to figure the part of the less, report the sale and the amount of gain to be recaptured as ordinary If you are a trader in securities or the exclusion, if any, in a similar income because of depreciation. The commodities with a mark-to-market manner on line 10 of Form disposition of each type of property is election under section 475(f) in effect reported separately in the appropriate for the tax year, the following special Passive Loss Limitations part of Form 4797 (for example, for rules apply. If you have an overall loss from passive property held more than 1 year, report Gains and losses from all securities activities and you report a loss on an the sale of a building in Part III and land or commodities held in connection with asset used in a passive activity, use in Part I). your trading business (including those Form 8582, Passive Activity Loss marked to market) are treated as Limitations, or Form 8810, Corporate Disposition of Assets That ordinary income and losses, instead of Passive Activity Loss and Credit Constitute a Trade or capital gains and losses. As a result, Limitations, to see how much loss is Business the lower capital gain tax rates and the allowed before entering it on Form If you sell a group of assets that make up a trade or business and the buyer s basis in the assets are determined wholly by the amount paid for the assets, both you and the buyer generally must allocate the total sales price to the assets transferred. File Form 8594, Asset Acquisition Statement, to report the sale. See Pub. 544 for more details on the sale of business assets. limitation on capital losses do not apply The gain or loss from each security or commodity held in connection with You cannot claim unused passive your trading business (including those activity credits when you dispose of marked to market) is reported on Form your interest in an activity. However, if 4797, line 10 (see the instructions for you dispose of your entire interest in an line 10 on page 6). activity, you may elect to increase the The wash sale rule does not apply to basis of the credit property by the securities or commodities held in original basis reduction of the property connection with your trading business. to the extent that the credit has not been allowed because of the passive For details on the mark-to-market activity rules. Make the election on election and how to make it, see Pub. Form 8582-CR, Passive Activity Credit Installment Sales 550; sections 475(e) and 475(f); and Limitations, or Form No basis If you sold property at a gain and you Rev. Proc , C.B adjustment may be elected on a partial will receive a payment in a tax year You can find Rev. Proc on page disposition of your interest in an activity. after the year of sale, you generally 52 of Internal Revenue Bulletin must report the sale on the installment at method unless you elect not to do so. Involuntary Conversion of Property Recapture of Preproductive Expenses Use Form 6252 to report the sale on the installment method. Also use Form If you elect not to use the uniform 6252 to report any payment received capitalization rules of section 263A, any You may not have to pay tax on a gain during your 2009 tax year from a sale plant that you produce is treated as from an involuntary or compulsory made in an earlier year that you section 1245 property. For dispositions conversion of property. See Pub. 544 reported on the installment method. of plants reportable on Form 4797, for details. enter the recapture amount taxed as To elect out of the installment ordinary income on line 22 of Form method, report the full amount of the Exclusion of Gain on Sale of See Disposition of plants and gain on a timely filed return (including a Home Used for Business animals in chapter 9 of Pub. 225, extensions). If you timely filed your tax If the property sold was used for Farmer s Tax Guide, for details. return without making the election, you business or to produce rental income can still make the election by filing an and was also owned and used as your Section 197(f)(9)(B)(ii) amended return within 6 months of the principal residence during the 5-year due date of your return (excluding Election period ending on the date of the sale, extensions). Write Filed pursuant to you may be able to exclude part or all If you made the election under section section at the top of the of the gain figured on Form (f)(9)(B)(ii) to recognize gain on the amended return. However, the exclusion may not apply disposition of a section 197 intangible to the part of the gain that is allocated and to pay a tax on that gain at the See Pub. 537, Installment Sales, for to any period after December 31, 2008, highest tax rate, include the additional more details. during which the property was not used tax on Form 1040, line 44 (or the as your principal residence. For details appropriate line of other income tax Traders Who Made a on the exclusion (including how to returns). Enter 197 and the amount in Mark-To-Market Election figure the amount of the exclusion), see the space next to line 44. The A trader in securities or commodities Pub. 523, Selling Your Home. additional tax is the amount that, when may elect under section 475(f) to use added to any other income tax on the the mark-to-market method to account If the property was held more than 1 gain, equals the gain multiplied by the for securities or commodities held in year, complete Part III to figure the highest tax rate. -2-

3 Rollover of Gain From Sale of Empowerment Zone substantially all of the time during which you otherwise would without regard to 3. The business qualified as an How to report. Report the entire gain enterprise zone business during realized from the sale or exchange as Assets you held the stock or partnership the exclusion. To report the exclusion, If you sold a qualified empowerment interest. enter DC Zone Asset Exclusion on zone asset that you held for more than Form 4797, line 2, column (a) and enter See Pub. 954, Tax Incentives for 1 year, you may be able to elect to as a (loss) in column (g) the amount of Distressed Communities, for the postpone part or all of the gain that you the exclusion that offsets the gain definition of empowerment zone and would otherwise include on Form 4797, reported in Part I, line 6. enterprise zone business. Part I. If you make the election, the gain on the sale generally is recognized only How to report. Report the entire gain Any unrecaptured section 1250 to the extent, if any, that the amount realized from the sale as you otherwise! gain is not qualified capital gain. CAUTION realized on the sale exceeds the cost of would without regard to the election. On Identify the amount of gain that qualified empowerment zone assets Form 4797, line 2, enter Section is unrecaptured section 1250 gain and (replacement property) you purchased 1397B Rollover in column (a) and report it on the Schedule D for the form during the 60-day period beginning on enter as a (loss) in column (g) the you are filing. the date of the sale. The following rules amount of gain included on Form 4797 apply. that you are electing to postpone. If you Exclusion of Gain From No portion of the cost of the are reporting the sale directly on Form Qualified Community Assets replacement property may be taken into 4797, line 2, use the line directly below If you sold or exchanged a qualified account to the extent the cost is taken the line on which you reported the sale. community asset acquired after into account to exclude gain on a See Pub. 954 and section 1397B for December 31, 2001, and before different empowerment zone asset. more details. January 1, 2010, that you held for more The replacement property must than 5 years, you may be able to qualify as an empowerment zone asset Exclusion of Gain From Sale exclude the qualified capital gain. The with respect to the same empowerment of DC Zone Assets qualified gain is, generally, any gain zone as the asset sold. recognized in a trade or business that You must reduce the basis of the If you sold or exchanged a District of you would otherwise include on Form replacement property by the amount of Columbia Enterprise Zone (DC Zone) 4797, Part I. This exclusion also applies postponed gain. asset that you acquired after December to an interest in, or property of, certain 31, 1997, and before January 1, 2010, This election does not apply to any renewal community businesses. and held for more than 5 years, you gain (a) treated as ordinary income or may be able to exclude the amount of Qualified community asset. A (b) attributable to real property, or an qualified capital gain. The qualified qualified community asset is any of the intangible asset, which is not an gain is, generally, any gain recognized following. integral part of an enterprise zone in a trade or business that you would Qualified community stock. business. otherwise include on Form 4797, Part I. Qualified community partnership The District of Columbia enterprise This exclusion also applies to an interest. zone is not treated as an empowerment interest in, or property of, certain Qualified community business zone for this purpose. businesses operating in the District of property. The election is irrevocable without Columbia. IRS consent. Qualified capital gain. Qualified DC Zone asset. A DC Zone asset is capital gain is any gain recognized on Qualified empowerment zone assets any of the following. the sale or exchange of a qualified are: DC Zone business stock. community asset that is a capital asset Tangible property, if: DC Zone partnership interest. or property used in a trade or business. 1. You acquired the property after DC Zone business property. It does not include any of the following December 21, 2000, and before gains: Qualified capital gain. The qualified January 1, 2010, Gain treated as ordinary income capital gain is any gain recognized on under section 1245; 2. The original use of the property in the sale or exchange of a DC Zone Section 1250 gain figured as if the empowerment zone began with asset that is a capital asset or property section 1250 applied to all depreciation you, and used in a trade or business. It does not rather than the additional depreciation; 3. Substantially all of the use of the include any of the following gain: Gain attributable to real property, or property, during substantially all of the Gain treated as ordinary income an intangible asset, that is not an time that you held it, was in your under section 1245; integral part of a qualified community enterprise zone business; and Gain treated as unrecaptured section business; and Stock in a domestic corporation or a 1250 gain. The section 1250 gain must Gain from a related-party transaction. capital or profits interest in a domestic be figured as if it applied to all See Sales and Exchanges Between partnership, if: depreciation rather than the additional Related Persons in chapter 2 of Pub. 1. You acquired the stock or depreciation; 544. partnership interest after December 21, Gain attributable to real property, or 2000, and before January 1, 2010, an intangible asset, which is not an See Pub. 954 and section 1400F for solely in exchange for cash, from the integral part of a DC Zone business; more details and special rules. corporation at its original issue (directly and How to report. Report the entire gain or through an underwriter) or from the Gain from a related-party transaction. realized from the sale or exchange as partnership; See Sales and Exchanges Between you otherwise would without regard to Related Persons in chapter 2 of Pub. 2. The business was an enterprise the exclusion. To report the exclusion, 544. zone business (or a new business enter Qualified Community Asset being organized as an enterprise zone See Pub. 954 and section 1400B for Exclusion on Form 4797, line 2, business) as of the time you acquired more details on DC Zone assets and column (a) and enter as a (loss) in the stock or partnership interest; and special rules. column (g) the amount of the exclusion -3-

4 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. 1. Gross sales price Cost or other basis 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. 4. Adjusted basis. Subtract line 3e from line Gain or loss. Subtract line 4 from line 1 (see Where To Report Amounts From Worksheet, below) 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 24, and complete the rest of Form Lines 1, 2, 3a, and 3b. Enter these amounts from Schedule K-1 (Form 1065 or 1120S). 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 For dispositions of property given up in an exchange involving like-kind property, complete the lines shown below for Form 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 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 one 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 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. that offsets the gain reported in Part I, Note. If you disposed of property you line 6. acquired by inheritance, enter Disposition by a Partnership INHERITED in column (b) instead of or S Corporation of Section the date you acquired the property. 179 Property Specific Instructions To show losses, enclose figures in (parentheses). Partners and S corporation shareholders. If you received a Schedule K-1 from a partnership or S -4-

5 corporation reporting the sale, report the partner s or shareholder s sale, or an outright sale of timber, exchange, or other disposition of share of all payments received for the under section 631(b). property for which a section 179 property in the following tax years. Disposal of coal (including lignite) or expense deduction was previously If the disposition was a disposition of domestic iron ore with a retained claimed and passed through to its property given up in an exchange economic interest that is treated as a partners or shareholders, you must involving like-kind property made during sale under section 631(c). report your share of the transaction on the partnership s or S corporation s tax Sales or exchanges of cattle and Form 4797, 4684, 6252, or 8824 year, any information needed by the horses, regardless of age, used in a (whether or not you were a partner or partner or shareholder to complete trade or business for draft, breeding, shareholder at the time the section 179 Form dairy, or sporting purposes and held for deduction was claimed). If you have a carryforward of unused 24 months or more from acquisition See the worksheet on page 4 to section 179 expense deduction that date. figure the amount to report on Form includes section 179 expense Sales or exchanges of livestock other 4797, 4684, 6252, or 8824, and to deduction previously passed through to than cattle and horses, regardless of figure any reduction in your you for the disposed asset, you must age, used in a trade or business for carryforward of the unused section 179 reduce your carryforward by your share draft, breeding, dairy, or sporting expense deduction. The partnership or of the section 179 expense deduction purposes and held for 12 months or S corporation must provide the shown on Schedule K-1 (or the amount more from acquisition date. following information on Schedule K-1 attributable to that property included in for the transaction. your carryforward amount). Note. Livestock does not include Description of the property. poultry, chickens, turkeys, pigeons, Date the property was acquired and Note. Partnerships (other than geese, other birds, fish, frogs, reptiles, placed in service. electing large partnerships) and S etc. Date of the sale or other disposition corporations do not report these transactions on Forms 4797, 4684, Sales or exchanges of unharvested of the property. 6252, or Instead, they provide crops. See section 1231(b)(4). The partner s or shareholder s share of the gross sales price or amount their partners and shareholders the Involuntary conversions of trade or realized. Enter this amount on line 1 of information they need to report the business property or capital assets held the worksheet. transactions. See the instructions for more than 1 year in connection with a The partner s or shareholder s share Form 1065 or Form 1120S for details trade or business or a transaction of the cost or other basis plus the on the information that must be entered into for profit. These expense of sale. Enter this amount on reported on Schedule K-1. conversions may result from (a) part or line 2 of the worksheet. total destruction, (b) theft or seizure, or The partner s or shareholder s share Line 1 (c) requisition or condemnation of the depreciation allowed or Enter on line 1 the total gross proceeds (whether threatened or carried out). If allowable, but excluding the section 179 from: any recognized losses were from expense deduction. Enter this amount Sales or exchanges of real estate involuntary conversions from fire, on line 3a of the worksheet. reported to you for 2009 on Form(s) storm, shipwreck, or other casualty or The partner s or shareholder s share 1099-S (or substitute statement) that from theft and the losses exceed the of the section 179 expense deduction you are including on line 2, 10, or 20 recognized gains from the conversions, passed through for the property and the and do not include any gains or losses from partnership s or S corporation s tax Sales of securities or commodities such conversions when figuring your year(s) in which the amount was reported to you for 2009 on Forms net section 1231 losses. passed through. Enter this amount on 1099-B (or substitute statements) that Transactions to which section line 3b of the worksheet your share of you are including on line 10 because 1231 does not apply. Section 1231 the total amount of the section 179 you are a trader with a mark-to-market transactions do not include sales or expense deduction passed through for election under section 475(f) in effect exchanges of: the property (even if you were not a for the tax year. See Traders Who Made a Mark-To-Market Election on Inventory or property held primarily partner or shareholder for the tax year page 2 and the Instructions for line 10 for sale to customers; in which it was passed through or you did not deduct all or part of the section on page 6. Copyrights, literary, musical, or 179 expense because of the dollar or artistic compositions, letters or taxable income limitations). The tax memoranda, or similar property (a) Part I year(s) in which the amount was created by your personal efforts, (b) passed through are provided so you Use Part I to report section 1231 prepared or produced for you (in the can determine the amount of unused transactions that are not required to be case of letters, memoranda, or similar carryover section 179 expense (if any) reported in Part III. property), or (c) received from someone for the property to report on Section 1231 transactions. The who created them or for whom they line 3c. following are section 1231 transactions. were created, as mentioned in (a) or If the disposition is due to a casualty Sales or exchanges of real or (b), in a way that entitled you to the or theft, a statement indicating so, and depreciable property used in a trade or basis of the previous owner (such as by any additional information needed by business and held for more than 1 year. gift); or the partner or shareholder to complete To figure the holding period, begin U.S. Government publications, Form counting on the day after you received including the Congressional Record, If the disposition was an installment the property and include the day you that you received from the Government sale made during the partnership s or S disposed of it. other than by purchase at the normal corporation s tax year reported using Cutting of timber that the taxpayer sales price or that you got from the installment method, any information elects to treat as a sale or exchange someone who had received it in a needed by the partner or shareholder to under section 631(a). similar way, if your basis is determined complete Form The partnership Disposal of timber with a retained by reference to the previous owner s or S corporation also must separately economic interest that is treated as a basis. -5-

6 Line 7 your net section 1231 losses from prior years. Enter the gain from line 9 as a long-term capital gain on the Schedule D for the return you are filing. For guidance on preferred stock held indirectly by applicable financial institutions through partnerships and subsidiaries, see Rev. Proc You can find Rev. Proc , in Internal Revenue Bulletin at Partners and S corporation shareholders receive a Schedule K-1 (Form 1065 or Form 1120S), which includes amounts that must be reported on the Form Following the instructions for Schedule K-1, enter any Part II amounts from your Schedule K-1 (Form If a transaction is not reportable in Part 1120S), box 9, or Schedule K-1 (Form I or Part III and the property is not a Electric Transmission 1065), box 10, in Part I of Form capital asset reportable on Schedule D, Transaction If the amount from line 7 is a gain report the transaction in Part II. Deferred Gain from Qualifying If you sold or exchanged qualifying and you do not have nonrecaptured If you received ordinary income from electric transmission property before section 1231 losses from prior years a sale or other disposition of your January 1, 2008 (before January 1, (see instructions for line 8), enter the interest in a partnership, see Pub. 541, 2010, for a qualified electric utility), and gain from line 7 as a long-term capital Partnerships. elected under section 451(i) to defer gain on the Schedule D for the return you are filing. Line 10 Report other ordinary gains and losses, the realized gain, the deferred gain is recognized ratably over the 8-year period that began with the tax year that Line 8 including gains and losses from includes the date of the disposition. Your net section 1231 gain on line 7 is property held 1 year or less, on this Include the applicable portion of the treated as ordinary income to the extent line. deferred gain for the current tax year on of your nonrecaptured section 1231 Deduct the loss from a qualifying line 10. Enter Deferred gain under losses. Your nonrecaptured section abandonment of business or section 451(i) in column (a) and 1/8 of 1231 losses are your net section 1231 investment property on line 10. See the deferred gain in column (g). See losses deducted during the 5 preceding Abandonments in Pub. 544 for more section 451(i) for more details. tax years that have not yet been information. applied against any net section 1231 Securities or Commodities Held gain to determine how much net Gain or Loss From Certain by a Trader Who Made a section 1231 gain is treated as ordinary Preferred Stock Mark-To-Market Election income under this rule. Gain or loss recognized by any Report on line 10 all gains and losses Example. You had net section applicable financial institution from the from sales and dispositions of securities 1231 losses of $4,000 and $6,000 in sale or exchange of any applicable or commodities held in connection with 2004 and 2005, respectively, and net preferred stock is ordinary income or your trading business, including gains section 1231 gains of $3,000 and loss. An applicable financial institution and losses from marking to market $2,000 in 2008 and 2009, respectively. includes: securities and commodities held at the The 2009 net section 1231 gain of A financial institution defined in end of the tax year (see Traders Who $2,000 is entered on line 7 and the section 582(c)(2), and Made a Mark-To-Market Election on nonrecaptured net section 1231 losses A depository institution holding page 2). Attach to your tax return a of $7,000 ($10,000 net section 1231 company defined in section 3(w)(1) of statement, using the same format as losses minus the $3,000 that was the Federal Deposit Insurance Act. line 10, showing the details of each applied against the 2008 net section Also, for this purpose, applicable transaction. Separately show and 1231 gain) are entered on line 8. The preferred stock is preferred stock of identify securities or commodities held entire $2,000 net section 1231 gain on Federal National Mortgage Association and marked to market at the end of the line 7 is treated as ordinary income and (Fannie Mae), or the Federal Home year. On line 10, enter Trader see is entered on line 12 of Form For Loan Mortgage Corporation (Freddie attached in column (a) and the totals recordkeeping purposes, the $4,000 Mac) that was: from the statement in columns (d), (f), loss from 2004 is all recaptured ($3,000 Held by the applicable financial and (g). Also, see the instructions for in 2008 and $1,000 in 2009), and you institution on September 6, 2008, or line 1 on page 5. have $5,000 of section 1231 losses Sold or exchanged by the applicable Small Business Investment from 2005 left to recapture ($6,000 financial institution after December 31, minus the $1,000 recaptured this year). Company Stock 2007, and before September 7, Report on line 10 ordinary losses from Figuring the Prior Year Losses In the case of a sale or exchange of the sale or exchange (including applicable preferred stock after You had a net section 1231 loss if worthlessness) of stock in a small September 6, 2008, by a taxpayer that section 1231 losses exceeded section business investment company held such preferred stock on 1231 gains. Gains are included only to operating under the Small Business September 6, 2008, these provisions the extent taken into account in figuring Investment Act of See apply only where the taxpayer was an gross income. Losses are included only section applicable financial institution at all to the extent taken into account in times during the period beginning on Also attach a statement that includes figuring taxable income except that the September 6, 2008, and ending on the the name and address of the small limitation on capital losses does not date of the sale or exchange of the business investment company and, if apply. applicable preferred stock. Therefore, applicable, the reason the stock is any Fannie Mae or Freddie Mac worthless and the approximate date it Line 9 preferred stock held by a taxpayer that became worthless. For recordkeeping purposes, if line 9 is was not an applicable financial zero, the amount on line 7 is the institution on September 6, 2008, is not Section 1244 (Small Business) amount of net section 1231 loss applicable preferred stock (even if such Stock recaptured in If line 9 is more taxpayer subsequently became an Individuals report ordinary losses from than zero, you have recaptured all of applicable financial institution). the sale or exchange (including -6-

7 worthlessness) of section 1244 (small your ordinary loss if (a) you received debt the buyer assumes or takes the business) stock on line 10. section 1244 stock in exchange for property subject to. For casualty or theft To qualify as section 1244 stock, all property with a basis in excess of its gains, include insurance or other six of the following requirements must FMV or (b) your stock basis increased reimbursement you received or expect be met. because of contributions to capital or to receive for each item. Include on this otherwise. See Pub. 550 for more line your insurance coverage, whether 1. You acquired the stock after June details. Report on Schedule D losses in or not you are submitting a claim for 30, 1958, upon original issuance of the excess of the maximum amount that reimbursement. shares from a domestic corporation (or may be treated as an ordinary loss (and the stock was acquired by a partnership all gains) from the sale or exchange of For section 1255 property disposed in which you were a partner section 1244 stock. of in a sale, exchange, or involuntary continuously from the date the stock conversion, enter the amount realized. was issued until the time of the loss). Keep adequate records to For section 1255 property disposed of 2. If the stock was issued before distinguish section 1244 stock from any in any other way, enter the FMV. November 7, 1978, it was issued under other stock owned in the same a written plan that met the requirements corporation. Line 21 of Regulations section (c)-1(f), Line 18a Reduce the cost or other basis of the and when that plan was adopted, the You must complete this line if there is a property by the amount of any corporation was treated as a small gain on Form 4797, line 3; a loss on enhanced oil recovery credit or disabled business corporation under Regulations Form 4797, line 11; and a loss on Form access credit. However, do not adjust section (c)-2(c). 4684, line 39, column (b)(ii). Enter on the cost or other basis for any of the 3. If the stock was issued after this line the smaller of the loss on Form items taken into account on line 22. November 6, 1978, the corporation was treated as a small business corporation 4797, line 11, or the loss on Form 4684, line 39, column (b)(ii). To figure Line 22 at the time the stock was issued under Regulations section (c)-2(b). To which loss is smaller, treat both losses Complete the following steps to figure be treated as a small business as positive numbers. Enter the part of the amount to enter on line 22. corporation, the total amount of money the loss from income-producing property on Schedule A (Form 1040), Step 1. Add amounts such as the and other property received by the line 28, and the part of the loss from following. corporation for its stock as a property used as an employee on Deductions allowed or allowable for contribution to capital and paid-in Schedule A (Form 1040), line 23. depreciation (including any special surplus generally may not exceed $1 depreciation allowance (see the Form million Instructions)), amortization, 4. The stock was issued for money Part III depletion, or preproductive expenses or other property (excluding stock or (see Disposition of plants and animals securities). Partners and shareholders in chapter 9 of Pub. 225). 5. The corporation, for its 5 most TIP reporting a disposition of section The section 179 expense deduction. recent tax years ending before the date 179 property which was The commercial revitalization of the loss, derived more than 50% of separately reported to you on Schedule deduction. its gross receipts from sources other K-1 (Form 1065 or 1120S), see The downward basis adjustment than royalties, rents, dividends, interest, Partners and S corporation under section 50(c) (or the annuities, and gains from sales and shareholders at the beginning of the corresponding provision of prior law). exchanges of stocks or securities. If the Specific Instructions. The deduction for qualified clean-fuel corporation was in existence for at least Generally, for property held 1 year or vehicle property or refueling property. 1 tax year but fewer than 5 tax years less, do not complete Part III; instead Deductions claimed under section ending before the date of the loss, the use Part II. For exceptions, see the 190, 193, or 1253(d)(2) or (3) (as in 50% test applies for the tax years chart on page 1. effect before the enactment of P.L. ending before that date. If the Use Part III to figure recapture of ). corporation was not in existence for at depreciation and certain other items The basis reduction for any qualified least 1 tax year ending before the date that must be reported as ordinary plug-in electric or qualified electric of the loss, the 50% test applies for the income on the disposition of property. vehicle credit. entire period ending before that date. Complete lines 19 through 24 to The basis reduction for the The 50% test does not apply if the determine the gain on the disposition of employer-provided childcare facility corporation s deductions (other than the the property. If you have more than four credit. net operating loss and properties to report, use additional The deduction for qualified energy dividends-received deductions) forms. For more details on depreciation efficient commercial building property. exceeded its gross income during the recapture, see Pub The basis reduction for the applicable period. But this exception to Note. If the property was sold on the alternative motor vehicle credit. the 50% test applies only if the installment sale basis, see the The basis reduction for the corporation was largely an operating Instructions for Form 6252 before alternative fuel vehicle refueling company within the 5 most recent tax completing Part III. Also, if you have property credit. years ending before the date of the loss (or, if less, the entire period the both installment sales and Step 2. From the Step 1 total, subtract corporation was in existence). noninstallment sales, you may want to amounts such as the following. 6. If the stock was issued before use separate Forms 4797, Part III, for Any investment credit recapture July 19, 1984, it must have been the installment sales and the amount if the basis of the property was common stock. noninstallment sales. reduced in the tax year the property was placed in service under section The maximum amount that may be Line 20 50(c)(1) (or the corresponding provision treated as an ordinary loss is $50,000 The gross sales price includes money, of prior law). See section 50(c)(2) (or ($100,000 if married filing jointly). the FMV of other property received, the corresponding provision of prior Special rules may limit the amount of and any existing mortgage or other law). -7-

8 Any section 179 or 280F(b)(2) 3. For the bulk storage of fungible 22-, 31.5-, or 39-year (or 40-year, if recapture amount included in gross commodities (including commodities in elected) nonresidential real property income in a prior tax year because the a liquid or gaseous state) used in these (except for 39-year qualified New York business use of the property decreased activities. Liberty Zone property acquired after to 50% or less. A single purpose agricultural or September 10, 2001, and property for Any qualified clean-fuel vehicle horticultural structure (as defined in which you elected to claim a property or refueling property deduction section 168(i)(13)). commercial revitalization deduction). you were required to recapture. A storage facility (not including a Any basis increase for qualified building or its structural components) ACRS property. Real property electric vehicle credit recapture. used in connection with the distribution depreciable under ACRS (pre-1987 Any basis increase for recapture of of petroleum or any primary petroleum rules) is subject to recapture under the employer-provided childcare facility product. section 1245, except for the following, credit. Any railroad grading or tunnel bore which are treated as section 1250 Any basis increase for recapture of (as defined in section 168(e)(4)). property. the alternative motor vehicle credit. 15-, 18-, or 19-year real property and Exceptions and limits. See section Any basis increase for recapture of low-income housing that is residential 1245(b) for exceptions and limits the alternative fuel vehicle refueling rental property. involving the following. property credit. 15-, 18-, or 19-year real property and Gifts. Any qualified disaster expense low-income housing that is used mostly Transfers at death. recapture under section 198A(d). outside the United States. Certain tax-free transactions. Certain like-kind exchanges, 15-, 18-, or 19-year real property and For more information on amounts involuntary conversions, etc. low-income housing for which a straight recaptured as depreciation allowed or Property distributed by a partnership line election was made. allowable, see chapter 3 of Pub to a partner. Low-income rental housing described You may have to include Transfers to tax-exempt in clause (i), (ii), (iii), or (iv) of section depreciation allowed or allowable on organizations where the property will be 1250(a)(1)(B). See the instructions for another asset (and refigure the basis used in an unrelated business. line 26b. amount for line 21) if you use its Timber property. Exceptions and limits. See section adjusted basis in determining the Special rules. See the following 1250(d) for exceptions and limits adjusted basis of the property sections for special rules. involving the following. described on line 19. An example is Section 1245(a)(4) (repealed) for Gifts. property acquired by a trade-in. See player contracts and section 1056(c) Regulations section (a)(4). Transfers at death. (repealed) for information required from Also, see Like-Kind Exchanges under Certain tax-free transactions. the transferor of a franchise of any Nontaxable Exchanges in chapter 1 of Certain like-kind exchanges, sports enterprise, for sales or Pub involuntary conversions, etc. exchanges before October 23, 2004, Property distributed by a partnership involving the transfer of player Line 23 to a partner. contracts. For section 1255 property, enter the Section 1245(a)(5) (repealed) for Disposition of qualified low-income adjusted basis of the section 126 property placed in service before 1987, housing. property disposed of. if only a portion of a building is section Transfers of property to tax-exempt 1245 recovery property. organizations if the property will be Line 25 Section 1245(a)(6) (repealed) for used in an unrelated business. qualified leased property placed in Dispositions of property as a result of Section 1245 property. Section 1245 service before foreclosure proceedings. property is property that is depreciable Section 1245(b)(8) for dispositions of (or amortizable under section 185 Special rules. Special rules apply in amortizable section 197 intangibles. (repealed), 197, or 1253(d)(2) or (3) (as the following cases. in effect before the enactment of P.L. Line 26 For additional depreciation )) and is one of the following. attributable to rehabilitation Personal property. Section 1250 property is depreciable expenditures, see section 1250(b)(4). Elevators and escalators placed in real property (other than section 1245 If substantial improvements have service before property). Generally, section 1250 been made, see section 1250(f). Real property (other than property recapture applies if you used an described under tangible real property accelerated depreciation method or you Line 26a below) subject to amortization or claimed any special depreciation allowance, or the commercial Enter the additional depreciation for the deductions under section 169, 179, revitalization deduction. period after Additional 179A, 179B, 179C, 179D, 179E, 185 depreciation is the excess of actual (repealed), 188 (repealed), 190, 193, or Section 1250 recapture does depreciation (including any special 194. TIP not apply to dispositions of the depreciation allowance, or commercial Tangible real property (except following MACRS property revitalization deduction) over buildings and their structural placed in service after 1986 (or after depreciation figured using the straight components) if it is used in any of the July 31, 1986, if elected). You are not line method. For this purpose, do not following ways. required to calculate additional reduce the basis under section 50(c)(1) 1. As an integral part of depreciation for these properties on line (or the corresponding provision of prior manufacturing, production, or extraction 26. law) to figure straight line depreciation. or of furnishing transportation, 27.5-year (or 40-year, if elected) Also, if you claimed a commercial communications, or certain public utility residential rental property (except for revitalization deduction, figure services year qualified New York Liberty straight-line depreciation using the 2. As a research facility in these Zone property acquired after property s applicable recovery period activities. September 10, 2001). under section

9 Line 26b on line 22 of Form 4797 any depletion smaller of (a) line 24 reduced by the Generally, use 100% as the percentage allowed (or allowable) in determining part of the gain treated as ordinary for this line. However, for low-income the adjusted basis of the property. income under the other provision or (b) rental housing described in clause (i), If you had a gain on the disposition line 29a. (ii), (iii), or (iv) of section 1250(a)(1)(B), of oil, gas, geothermal, or other mineral see that section for the percentage to properties (section 1254 property) Part IV use. placed in service after 1986, you must recapture all expenses that were Column (a) Line 26d deducted as intangible drilling costs, If you took a section 179 expense Enter the additional depreciation after depletion, mine exploration costs, and deduction for property placed in service 1969 and before If straight line development costs under sections 263, after 1986 (other than listed property, depreciation exceeds the actual 616, and 617. as defined in section 280F(d)(4)) and depreciation for the period after 1975, Exception. Property placed in service the business use of the property reduce line 26d by the excess. Do not after 1986 and acquired under a written decreased to 50% or less this year, enter less than zero on line 26d. contract entered into before September complete column (a) of lines 33 through Line 26f 26, 1985, and binding at all times 35 to figure the recapture amount. thereafter is treated as placed in The amount the corporation treats as service Column (b) ordinary income under section 291 is before % of the excess, if any, of the If you have listed property that you amount that would be treated as Note. A corporation that is an placed in service in a prior year and the ordinary income if such property were integrated oil company completes line business use decreased to 50% or less section 1245 property, over the amount 28a by treating amounts amortized this year, figure the amount to be treated as ordinary income under under section 291(b)(2) as deductions recaptured under section 280F(b)(2). section If the corporation used under section 263(c). Complete column (b), lines 33 through the straight line method of depreciation, 35. See Pub. 463, Travel, Line 28a the ordinary income under section 291 Entertainment, Gift, and Car Expenses, is 20% of the amount figured under If the property was placed in service for more details on recapture of excess section before 1987, enter the total expenses depreciation. after 1975 that: Note. If you have more than one Line 27 Were deducted by the taxpayer or property subject to the recapture rules, Partnerships (other than electing large any other person as intangible drilling figure the recapture amounts separately partnerships) skip this section. Partners and development costs under section for each property. Show these must enter on the applicable lines of 263(c) (except previously expensed calculations on a separate statement Part III amounts subject to section 1252 mining costs that were included in and attach it to your tax return. according to instructions from the income upon reaching the producing partnership. state), and Line 33 Would have been reflected in the You may have ordinary income on In column (a), enter the section 179 adjusted basis of the property if they the disposition of certain farmland held expense deduction you claimed when had not been deducted. more than 1 year but less than 10 the property was placed in service. In years. If the property was placed in service column (b), enter the depreciation after 1986, enter the total expenses allowable on the property in prior tax Refer to section 1252 to determine if that: years (plus any section 179 expense there is ordinary income on the Were deducted under section 263, deduction you claimed when the disposition of certain farmland for which 616, or 617 by the taxpayer or any property was placed in service). deductions were allowed under other person; and sections 175 (soil and water But for such deduction, would have Line 34 conservation) and 182 (land clearing) been included in the basis of the In column (a), enter the depreciation (repealed). Skip line 27 if you dispose property, plus that would have been allowable on the of such farmland during the 10th or The deduction under section 611 that section 179 property from the year the later year after you acquired it. reduced the adjusted basis of such property was placed in service through Gain from disposition of certain property. (and including) the current year. See farmland is subject to ordinary income If you disposed of a portion of Pub. 946, How To Depreciate Property. rules under section 1252 before the section 1254 property or an undivided In column (b), enter the depreciation application of section 1231 (Part I). interest in it, see section 1254(a)(2). that would have been allowable if the Enter 100% of line 27a on line 27b property had not been used more than except as follows. Line 29a 50% in a qualified business. Figure the 80% if the farmland was disposed of Use 100% if the property is disposed of depreciation from the year it was placed within the 6th year after it was acquired. less than 10 years after receipt of in service up to (but not including) the 60% if disposed of within the 7th payments excluded from income. Use current year. See Pub. 463 and Pub. year. 100% minus 10% for each year, or part % if disposed of within the 8th of a year, that the property was held year. over 10 years after receipt of the Line 35 20% if disposed of within the 9th excluded payments. Use zero if 20 Subtract line 34 from line 33 and enter year. years or more. the recapture amount as other income Line 28 Line 29b on the same form or schedule on which you took the deduction. For example, if If you had a gain on the disposition of If any part of the gain shown on you took the deduction on Schedule C oil, gas, or geothermal property placed line 24 is treated as ordinary income (Form 1040), report the recapture in service before 1987, treat all or part under sections 1231 through 1254 (for amount as other income on Schedule C of the gain as ordinary income. Include example, section 1252), enter the (Form 1040). -9-

10 Note. If you filed Schedule C or F your trade or business is subject to Be sure to increase your basis in the (Form 1040) and the property was used self-employment tax. Allocate the property by the recapture amount. in both your trade or business and for amount on line 35 to the appropriate the production of income, the portion of schedules. the recapture amount attributable to 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 The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for individual taxpayers filing this form is approved under OMB control number and is included in the estimates shown in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is shown below. Recordkeeping hr., 23 min. Learning about the law or the form... 8 hr., 20 min. Preparing, copying, assembling, and sending the form to the IRS... 9 hr., 17 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. -10-