If you sold business-use property during the year, you either realized a gain or a loss on the sale, and you must complete and file Form 4797.
Business-use property includes:
Rental property, such as an apartment or a house.
The part of your home used as a home office if it’s not connected to the house.
Vehicles or equipment used for business or investment purposes that you claim depreciation for.
You usually report a disposition (or sale) of business-use property in the year in which you dispose of the property. This occurs when your business property is sold, exchanged, retired, abandoned, involuntarily converted, or destroyed.
The tax code includes classifications of property that affect how the gains or losses on the sale of the property are taxed.
Property is classified in the following manner:
Personal property
Tangible -- Property that physically exists, has intrinsic value, and is movable. Examples include vehicles, machinery, equipment, furnishings, and livestock.
Intangible -- Property that doesn’t physically exist or have intrinsic value. The value of intangible personal property is in the rights conveyed. Examples include patents, copyrights, and goodwill.
Real property (land and improvements to land). Examples include land, buildings, and their component parts.
The classification determines how you handle the gain or loss on your tax return. For example, if you have a loss on the sale of business use property, it’s not considered a capital loss. This is good news because only $3,000 of a net capital loss can be deducted from income. If something isn’t considered a capital loss, however, then the whole loss amount can be deducted from income.
However, if you have a gain on the sale of tangible personal property, the amount of the gain is taxed in two different ways. Part of it is taxed as a capital gain and is eligible for special rates if the property was held long term, and part is taxed as ordinary income. For more information on how this works, see IRS Publication 544, Sales and Other Dispositions of Assets.