When you sell rental real estate property, you receive Form 1099-S from the brokerage that processes the sale. You must report the 1099-S information on Form 4797, Sale of Business Property. Only proceeds you receive from the sale of property you rented are reported on Form 4797. In addition to information reported on Form 1099-S, you must have other information about the rental property to properly report your 1099-S proceeds, such as the amount you paid for the property and the date you first purchased the real estate or began renting it out.
Report a description of the property you sold on line 19a of Form 4797, Part III. Report the date you acquired the property on line 19b and the date you sold the property on line 19c. The sales date for the property is shown on Form 1099-S, box 1.
Report the box 2 amount shown on your 1099-S on Form 4797, line 20.
Calculate your cost basis in the property you sold. This includes your purchase price, plus any additional equity loans you take against the property and any costs you incurred to take possession of the property when you purchased it, such as recording fees. Report the total on Form 4797, line 21.
Calculate the total depreciation expense you claimed for the property during the time it was in use. Your total depreciation may be shown as accumulated depreciation on your depreciation worksheet from the last tax return you filed for the property. Otherwise, you must calculate the expense from each tax return you filed claiming depreciation for the property. Report the total on Form 4797, line 22.
Subtract your total depreciation expense for the property from your cost basis. Report the result on Form 4797, line 23. The result is your adjusted basis in the property.
Calculate the difference between the amounts shown on line 23 and line 20. If the result is a positive figure, you have a gain on the sale of the property. If the result is negative, you have a loss on the sale. Report the result on Form 4797, line 24.