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exclude gain to the extent of that depreciation. On Part I,
line 2, enter “Section 121 exclusion,” and enter the amount
of the exclusion as a (loss) in column (g).
If the property was held for 1 year or less after you
converted it to business use, report the sale and the
amount of the exclusion, if any, in a similar manner on Part
II, line 10.
For details and exceptions, including how to figure gain
on the sale of a home used for business and the amount
of the exclusion, see section 121 and Pub. 523.
Involuntary Conversion of Property
You may not have to pay tax on a gain from an involuntary
or compulsory conversion of property. See Pub. 544 for
details.
Passive Loss Limitations
If you have an overall loss from passive activities and you
report a loss on an asset used in a passive activity, use
Form 8582, Passive Activity Loss Limitations, or Form
8810, Corporate Passive Activity Loss and Credit
Limitations, as applicable, to see how much loss is
allowed before entering it on Form 4797.
You cannot claim unused passive activity credits when
you dispose of your interest in an activity. However, if you
dispose of your entire interest in an activity, you may elect
to increase the basis of the credit property by the original
basis reduction of the property to the extent that the credit
has not been allowed because of the passive activity
rules. Make the election on Form 8582-CR, Passive
Activity Credit Limitations, or Form 8810, as applicable.
No basis adjustment may be elected on a partial
disposition of your interest in an activity.
Recapture of Preproductive Expenses
If you elect under section 263A(d)(3) not to use the
uniform capitalization rules of section 263A, any plant that
you produce is treated as section 1245 property. For
dispositions of plants reportable on Form 4797, enter the
recapture amount taxed as ordinary income on Part III,
line 22. See
Disposition of plants in chapter 9 of Pub. 225,
Farmer's Tax Guide, for details.
Section 197(f)(9)(B)(ii) Election
If you made the election under section 197(f)(9)(B)(ii) to
recognize gain on the disposition of a section 197
intangible and to pay a tax on that gain at the highest tax
rate, include the additional tax on Form 1040, line 16 (or
the appropriate line of other income tax returns). Check
box 3 and enter “197” and the tax in the space next to that
box. The additional tax is the amount that, when added to
any other income tax on the gain, equals the gain
multiplied by the highest tax rate.
Deferral of Gain Invested in a Qualified
Opportunity Fund (QOF)
If you realized a gain from an actual or deemed sale or
exchange with an unrelated person and, during the
180-day period beginning on the date the gain is realized,
you invested any portion of the gain in a QOF, then you
may be able to elect to temporarily defer such eligible
capital gain that would otherwise be includible in the
current tax year’s income. If you make the election, the
eligible capital gain is included in taxable income only to
the extent, if any, the amount of realized gain exceeds the
aggregate amount invested in a QOF during the 180-day
period.
A taxpayer may elect to temporarily defer a qualified
section 1231 gain (gains derived from the sale of property
used in a trade or business, including gains from
installment sales and like-kind exchanges) by investing
the amount of the eligible gain into a QOF. Qualified
section 1231 gains are eligible to be invested into a QOF
to the extent the section 1231 gain exceeds any amount
that is treated as ordinary income due to depreciation
recapture as required by sections 1245 and 1250.
Sections 1245 and 1250 gain may not be deferred into a
QOF. For more information, see section 1400Z-2 and the
related regulations.
How to report. Report the gain including any
depreciation recapture required by sections 1245 and
1250 as it would otherwise be reported if you were not
making the election. Then, on Form 4797, line 2, report
the qualified section 1231 gains you are electing to defer
as a result of an investment into a QOF within 180 days of
the date sold. If you are reporting the sale directly on Form
4797, line 2, use the line directly below the line on which
you reported the sale. In column (a), identify the section
1231 gains invested into a QOF as “QOF investment to
Form 8949”; columns (b), (c), (d), (e), and (f) will remain
blank. Report the amount of section 1231 gains invested
into a QOF as a negative amount (in parentheses) in
column (g).
For example, if a taxpayer realizes $300,000 of section
1231 gains in a tax year but chooses to defer $75,000 of
section 1231 gains by investing those gains into a QOF
within 180 days of the date of sale, the taxpayer would
enter “QOF investment to Form 8949” in column (a) and
enter ($75,000) in column (g).
Similarly, if the taxpayer disposed of an investment in a
QOF during the tax year triggering recognition of section
1231 deferred gains, the taxpayer should report the gain
on a separate row in line 2, enter “QOF inclusion from
section 1231 gains” in column (a), and report the $75,000
of previously deferred and currently recognizable section
1231 gains as a positive number in column (g).
Make the election for the deferred amount invested in a
QOF on Form 8949. See the Instructions for Form 8949. If
you held a qualified investment in a QOF at any time
during the year, you must file your return with Form 8997
attached. See the instructions for Form 8997. For more
information about QOFs, see
IRS.gov/Ozfaqs.
Exclusion of Gain From Sale of DC Zone Assets
If you sold or exchanged a District of Columbia Enterprise
Zone (DC Zone) asset that you acquired after 1997 and
before 2012, and held for more than 5 years, you may be
able to exclude the amount of “qualified capital gain.” This
exclusion applies to an interest in, or property of, certain
businesses operating in the District of Columbia.
DC Zone asset. A DC Zone asset is any of the following.
•
DC Zone business stock.
•
DC Zone partnership interest.
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Instructions for Form 4797 (2023)