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If you sell or dispose of property used in a trade or business, it must be reported on IRS Form 4797, Sales of Business Property. This form is divided into several sections, which are used for different types of property.
Part II, "Ordinary Gains and Losses," is used for property held for one year or less, and for property not eligible for the long-term gain rate such as accounts receivable and inventory sold as part of a sale of your business.
Part III, "Gain from Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255," is used for reporting the sale of depreciable personal property (known as 1245 property) and depreciable real estate (known as 1250 property). The other forms of property are less commonly used, but a translation is: 1252 property is farmland held more than one year but less than 10 years; 1254 property is oil, gas, or geothermal property place in service before 1987, and 1255 property is property for which you received certain types of government conservation program payments.
Part III is where your depreciation recapture (if any) will be figured. The net result of this section will be carried over to Part II on the front of the form.
Part I is used to report the sale of property not included in Part III, such as land, and gains from installment sales (originally reported on Form 6252 and carried over to Line 4 of Part I) and like-kind exchanges (originally reported on Form 8824).
Finally, Part IV is used to report an event that may not look like a sale, but is treated as a taxable event by the IRS: the recapture of some of your depreciation deductions when your business use of listed property drops below 51 percent and the recapture of some of your Section 179 expensing election when your business use drops below 51 percent for property you've previously expensed.