Form 4797 is organized so as to implement the rule that, for property reported on this form, a net loss on property held long-term is treated as an "ordinary" loss, whereas a net gain is treated as a "capital gain." This is usually beneficial to taxpayers, because ordinary losses are fully deductible, but there are limits on capital loss deductions. Also, ordinary losses can offset income taxed at the top marginal rate, but capital losses can only offset income taxed at the top capital gains rate.
It is for this reason that losses from line 7g in the long-term section are carried to line 11 in the short-term section.
There is also a rule to prevent people from arranging their affairs so as to have all their losses in one year and all their gains in another. This rule requires taxpayers to "save" the losses they report on this form for a while, and use them to offset gains in future years. The effect of this is to "undo" the ordinary loss deduction for those losses and convert it to a capital loss deduction.
This rule is implemented on lines 8g and 9g, where any gains you have are reduced by previous years' losses.
This form is also used to report "recapture" income required by various provisions of the tax code. This recapture income then is also used to offset the kind of special losses that can be treated as ordinary losses. (Line 32 from the recapture section is carried to line 6g in the long-term gain section.)
We reserve the last line of the top chart for carries of Section 1231 gain or loss from the K-1 Worksheet and the K-1 Trust and Estate Worksheet.
We carry from Form 6252 both the amounts on line 26 and the amount on line 37 to Line 4g, but only if you have indicated at the top of Form 6252 that you want the income to carry to Form 4797, long term.
We reserve line 10g in the chart for short term gains and losses for carries of "other income" from the K-1 Worksheet. We carry these items only if the K-1 was for a nonpassive (that is not a passive) activity. The lines we carry from the K-1 are the lines for Section 751 items and the Special Allocation Income.
We carry from Form 6252 both the amounts on line 26 and the amount on line 37 to the bottom line of the chart for short term gains and losses, but only if you have indicated at the top of Form 6252 that you want the income to carry to Form 4797, short term.
We carry the totals from Form 6252 for recapture income (lines 25 and 36) to line 15, regardless of the indicator you set at the top of Form 6252.