Question

Ellen purchased a van for $28,000 to use exclusively in her delivery business. She sold it four months later in the same year for $22,500. What is the amount of gain or loss, and where does Ellen report the sale?

A. $5,500 gain, Form 4797, Part I.
B. $5,500 loss, Form 4797, Part I.
C. $5,500 loss, Form 4797, Part II.
D. $5,500 loss, Schedule D.

Answer 1

Answer.

Option C is correct.

Form 4797 is used to report gains made from the sale or exchange of business property, including but not limited to property used to generate rental income, and property used for industrial, agricultural, or extractive resources.

Schedule D is for reporting capital gains and losses on investment property, such as stocks, bonds, and mutual funds. Form 4797 is for reporting the sale of capital assets, such as equipment your business used to produce goods or sell services to the public.

Form 4797 has four parts. In general, most depreciable property held for more than a year is recognized under Part I—Sales or Exchanges of Property Used in a Trade or Business and Involuntary Conversions From Other Than Casualty or Theft. Property held for a year or less and sold for a loss is recorded in Part II—Ordinary Gains and Losses. Capital assets held for more than a year and sold for a profit fall in the section labeled Part III—Gain From Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255.