Investors & landlords

Yes, you may need to use Form 4797 to report the sale of your rental property, even if it was not classified as a business. Here's why:

1. Rental Property Sales: The IRS thinks rental properties are like investment properties. If you sold a rental property, you usually report it on Form 4797. This form is used to report gains or losses from the sale of business or income-producing property.
2. Installment Sale: Since you sold the property in 3 years, you'll also need to report the sale on Form 6252 (Installment Sale Income). This will help you figure out how much of the gain you'll report each year as you get payments.
3. Depreciation Recapture: If you claimed depreciation on the property while it was rented, you may need to account for depreciation recapture, which is reported on Form 4797. This is taxed as ordinary income.
4. Capital Gains: Any remaining gain after depreciation recapture is typically reported on Schedule D (Capital Gains and Losses).

To summarize:

• Use Form 4797 to report depreciation recapture and any gain or loss from the sale.
• Use Form 6252 to report the installment sale.
• Use Schedule D for any capital gains.

As an FYI, Form 4797 is generated when you report the sale of the rental in the rental property section of your return. Installment sales are reported by going to  Less Common Income > Select Installment Sales (Start/Update) in the income section of your return. Schedule D is automatically generated when your capital gains is determined after you report yoursale.