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J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return by J.K. Lasser Institute

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44.8 Property Used in a Business (Section 1231 Assets)

Form 4797 is used to report the sale or exchange of Section 1231 assets. The following properties used in a business are considered “Section 1231 assets”:

  • Depreciable assets such as buildings, machinery, and other equipment held more than one year. Depreciable rental property and royalty property fits in this category if held more than one year.
  • Land (including growing crops and water rights underlying farmland) held more than one year.
  • Timber, coal, or domestic iron ore subject to special capital gain treatment.
  • Leaseholds held more than one year.
  • An unharvested crop on farmlands, if the crop and land are sold, exchanged, or involuntarily converted at the same time and to the same person and the land has been held more than one year. Such property is not included here if you retain an option to reacquire the land.
  • Cattle and horses held for draft, breeding, dairy, or sporting purposes for at least 24 months.
  • Livestock (other than cattle and horses) held for draft, breeding, dairy, or sporting purposes for at least 12 months. Poultry is not treated as livestock for purposes of Section 1231.

Section 1231 netting.

On Form 4797, you combine all losses and gains, except gains allocated to depreciation recapture, from:

  • The sale of Section 1231 assets (from the list at the beginning of this section).
  • The involuntary conversion of Section 1231 assets and capital assets held for more than one year for business or investment purposes. ...

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