Selling a business interest often involves real estate and equipment, each with its own reporting rules. If proceeds aren’t allocated properly, the return can be inaccurate, and the client may face unexpected tax consequences.

By strengthening your understanding of how these components interact on Form 4797, you can prepare more accurate filings and offer clients clear guidance during high-stakes transactions.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: What is Section 1250 property, and how is the gain on its sale treated?

A: Section 1250 property generally refers to depreciable real property, such as buildings and structural components. Gain attributable to straight-line depreciation is taxed as unrecaptured Section 1250 gain at a maximum rate of 25% [§1250].

Q: Why is a desk considered Section 1245 property?

A: A desk is classified as tangible personal property (equipment or furniture) used in a trade or business and is not a structural component of a building; therefore, it is Section 1245 property [§1245].

Q: How is a water tank installed on a ranch classified?

A: A water tank’s classification depends on how it is installed. Generally, if it is a structural component or permanently affixed to land, it may be Section 1250 property. Otherwise, it may be considered Section 1245 property if it functions as equipment [§1245, §1250].

Q: What is the tax treatment when selling fully depreciated property for a gain?

A: When fully depreciated property with a zero adjusted basis is sold, the entire sale prices are treated as gain. For Section 1245 property, this gain is recaptured as ordinary income up to prior depreciation [§1245].

To learn more about mastering Form 4797, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

Thanks to the One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025, opportunity zones (OZs) are entering a new era. This reboot expands benefits (especially for rural communities) and introduces new rules that tax professionals need to understand. Do you have clients sitting on capital gains from recent stock sales, real estate deals or business exits? They may be able to defer tax and eliminate future gains by reinvesting in a qualified opportunity fund (QOF), an investment vehicle that channels capital into designated opportunity zones. Note that only capital gains from selling appreciated assets are eligible for this tax treatment, and timing is key to unlocking the full deferral, basis increase and long-term exclusion benefits.

What are opportunity zones?

Qualified opportunity zones were introduced in 2017 under the Tax Cuts and Jobs Act. The program encourages investment in underserved areas (typically low-income or economically distressed census tracts) by offering tax incentives through qualified opportunity funds (QOFs).

Key tax benefits include:

• Capital gain deferral – Gains reinvested in a QOF are deferred until the earlier of:
  • (1) the sale or exchange of the QOF investment, or
  • (2) five years after the investment date.
• 10% basis step-up – For QOF investments held at least five years, a 10% basis increase applies (30% for qualified rural opportunity funds). The prior 15% step-up for seven-year holdings no longer applies to investments made after 2026.
• Tax-free growth – If held for at least 10 years, gains on QOF investments are excluded from income when sold.

Key changes under the 2025 reboot

Here’s what tax pros should know about the opportunity zone updates:

• OZs are now subject to a 10-year re-certification cycle to ensure zones stay current.
• Qualified Rural Opportunity Funds (QROFs) offer a 30% basis increase on deferred gains after five years. QROFs must invest at least 90% of their assets in OZs located entirely within rural areas (not in or adjacent to towns with populations of 50,000 or more).
• Governors must now follow stricter criteria to designate zones.
• The IRS must collect and report data on jobs, property values, and economic impact.

What stays the same

Familiar provisions continue to apply:

• 180-day investment window for eligible gains
• 10-year tax-free growth rule for QOF investments
• Five- and seven-year basis step-ups still apply for pre-2026 investments

Planning tips for maximizing OZ benefits

Here are ways to help your clients make the most of the program:

• Explore rural zones using updated maps (expected in 2026)
• Consider investments in agriculture, healthcare, logistics and clean energy
• Time investments to align with either basis step-ups (pre-2026) or rural zone entry (post-July 2026)
• Choose a QOF structure that suits the client’s goals – either active management or passive investment with a rural fund manager

NOTE: The Treasury Secretary must now publish annual reports on OZ and QROF economic impact, including job creation, property values, income, and housing data.

What to watch for

Ensure your clients stay compliant and protected by monitoring the following:

• Verify zone eligibility under the updated 10-year map rules before recommending an investment
• Review fund status and disclosures to confirm the QOF is appropriately certified and meeting IRS compliance
• Maintain documentation to support deferral, basis step-ups and eventual exclusion of gains
• Plan for inclusion events and exit timing, especially for clients nearing a 10-year holding milestone
• Evaluate fund alignment with the client’s liquidity needs, risk tolerance and investment goals

How to identify strong OZ candidates

Not every client is suitable for an opportunity zone investment. Start by identifying clients with recent or upcoming capital gains, especially those from appreciated stock sales, real estate transactions or business exits. If they’re seeking long-term reinvestment opportunities and are open to holding an asset for at least five to 10 years, a QOF could be a strong fit.

Clients with philanthropic or community-driven goals may also find OZ investing appealing, particularly in rural areas where their capital can drive real local impact. Discuss liquidity, exit timing and inclusion events with clients before committing.

What’s new for compliance and reporting

H.R. 1 significantly expanded reporting requirements for both funds and investors. Funds must now submit annual filings with the IRS that detail census tract-level investments, employee headcounts, residential unit development and NAICS code classifications.

Investors who exit a QOF must receive personalized statements and may face penalties if required disclosures aren’t timely or complete. Penalties for noncompliance include:

• $500/day for incomplete filings (max $10,000)
• $50,000 max for large funds (assets over $10 million)
• $2,500/day for intentional disregard (max $250,000)

It’s critical to partner with a fund that understands these obligations and can demonstrate strong compliance through timely reporting and investor transparency.

The updated opportunity zone program opens new doors for rural investment and long-term tax planning. Tax professionals are key in guiding clients toward strategic, compliant OZ participation.

Question: Sarah is a single taxpayer with a modified adjusted gross income (MAGI) of $95,000. In January 2025, she bought a brand-new SUV assembled in the U.S. for personal use. At the same time, she took out a loan secured by the vehicle as a first lien. She anticipated paying $9,500 in interest by the end of 2025. She heard the new law allows her to deduct the full amount. Sarah does not itemize. Can she still take the full deduction on her 2025 tax return?

Answer: Yes, she can. Even though she doesn’t itemize deductions, she can deduct the full $9,500 of interest as a below-the-line deduction (subtraction from adjusted gross income to arrive at taxable income) on her 2025 tax return. Under the new law, §63(b)(7) has been added to the Internal Revenue Code. This change allows for this special deduction for the qualified interest paid on personal car loans.

OBBBA provides individuals (including non-itemizers) with a temporary tax deduction for interest paid on loans used to purchase a new personal-use passenger vehicle.

For tax years 2025 through 2028, taxpayers may deduct up to $10,000 of the car loan interest per year, subject to a phase-out starting at $100,000 MAGI for single filers ($200,000 for joint filers), with the deduction fully phased out at $150,000 MAGI ($250,000 for joint filers).

To qualify, the following requirements under new §613(h), added by Section 70203 of the OBBBA, must be met:

• The loan must be incurred after Dec. 31, 2024
• The vehicle must be new, for personal use and secured by a first lien
• The vehicle’s original use must begin with the taxpayer (i.e., Sarah must be the first user)
• The vehicle must be a car, van, SUV, pickup truck, motorcycle or minivan with a gross vehicle weight rating under 14,000 pounds
• The vehicle must be finally assembled in the United States
• The taxpayer must report the vehicle identification number (VIN) on their tax return

The deduction is phased out starting at $100,000 MAGI for single filers ($200,000 for joint filers), but Sarah’s MAGI of $95,000 is below that threshold.

Sarah meets all requirements, and her MAGI of $95,000 is below the phase-out threshold. Therefore, she can deduct the full amount on her 2025 tax return.