IRS Form 4797 - Sales of Business Property
Those who have elected the Mark to Market accounting method with the IRS file their gains and losses on the IRS form 4797- Sales of Business Property. This election must have been made by April 15 of the current tax year (ie: April 15, 2004 for the 2004 tax year), or any previous year, otherwise you will have to wait till next year for the election to take affect.
Basic Layout of the form
Click on the form below to view a full size PDF copy:
Click here to view the IRS instructions for form 4797
The form is broken down into two major sections:
- Part I - Sales or Exchanges of Property Used in a Trade or Business
- Part II - Ordinary Gains or Losses
Since all trades are priced to year end market prices and are therefore held one year or less, all of the MTM trades are by definition short term and are considered Ordinary and are to be listed in Part II of this form.
There are seven columns in Part II as shown below:
| (a) Description of property |
(b) Date acquired |
(c) Date sold |
(d) Gross sales price |
(e) Depreciation |
(f) Cost or other basis |
(g) Gain (or loss) for entire year |
One additional column has been added for the 2003 tax year: (h) Post-May 5 gain (or loss). This additional column is to total trades that were completed on May 6 or later.
Column (e) Depreciation is not used for the purposes of investments, so we will concern ourselves only with columns a-d, and f-g.
How to report:
If you made the mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Schedule D. In that case, securities held at the end of the year in your business as a trader are marked to market by treating them as if they were sold (and reacquired) for fair market value on the last business day of the year. But do not mark to market any securities you held for investment. Report sales from those securities on Schedule D, not Form 4797.
The instructions for Form 4797 Line 10 states:
Report on line 10 all gains and losses from sales and dispositions of securities or commodities held in connection with your trading business, including gains and losses from marking to market securities and commodities held at the end of the tax year.
- Attach to your tax return a statement, using the same format as line 10, showing the details of each transaction.
- this is easily done with GTT TradeLog™ - Gains & Losses report
- Separately show and identify securities or commodities held and marked to market at the end of the year.
- Also done by GTT TradeLog™ - Securities Marked to Market report
- On line 10, enter “Trader—see attached” in column (a) and the totals from the statement in columns (d), (f), and (g).
Once again, all of the same trade matching rules apply as described in our "IRS schedule d" tax topic under the heading: Matching and entering your trades on schedule d so having an automated method of doing so can save you many hours of grief.
In addition, GTT TradeLog™ provides the following reports necessary for filing your MTM gains and losses:
Please note: This information is provided only as a general guide and is by no means to be taken as official IRS instructions. As always, please consult your tax advisor or accountant for details.
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