U.S. · Tax forms
Form 4797 line 8, nonrecaptured section 1231 losses.
The five-year lookback that can turn a section 1231 gain into ordinary income.
Line 8 (“Nonrecaptured net section 1231 losses from prior years”) is your net section 1231 losses deducted during the 5 preceding tax years that have not yet been applied against a net section 1231 gain. Your line 7 gain is treated as ordinary income up to that amount.
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Result
What the 2025 Form 4797 says
| Item | Meaning | What the IRS says |
|---|---|---|
| Definition | Five-year lookback | Net section 1231 losses deducted during the 5 preceding tax years that have not yet been applied against any net section 1231 gain to determine how much gain is treated as ordinary income |
| Net section 1231 loss | Losses exceed gains | You had a net section 1231 loss if section 1231 losses exceeded section 1231 gains; gains count only to the extent taken into account in gross income and losses only to the extent in taxable income, except the capital loss limit does not apply |
| Effect on line 7 gain | Ordinary to the extent | Your net section 1231 gain on line 7 is treated as ordinary income to the extent of your nonrecaptured section 1231 losses |
| No prior losses | Skip line 8 | If line 7 is a gain and you had no prior-year section 1231 losses, or they were recaptured earlier, enter the gain as a long-term capital gain on Schedule D and skip lines 8, 9, 11 and 12 |
| Line 7 zero or loss | Skip lines 8 and 9 | Enter the amount from line 7 on line 11 and skip lines 8 and 9 |
| Line 9 | Remaining capital gain | Subtract line 8 from line 7. If line 9 is zero, the line 7 gain goes on line 12; if more than zero, enter the line 8 amount on line 12 and the line 9 gain as long-term capital gain on Schedule D |
| Recordkeeping | Track what is left | If line 9 is zero, the amount on line 7 is the net section 1231 loss recaptured in 2025; if line 9 is more than zero, all prior net section 1231 losses are recaptured |
Why the rule exists
Section 1231 losses are ordinary deductions, while section 1231 gains are normally long-term capital gains. The lookback keeps you from getting ordinary treatment on the way down and capital gain treatment on the way up. Line 8 measures the ordinary losses still waiting to be offset.
The IRS example
The instructions give this example. You had net section 1231 losses of $4,000 and $6,000 in 2020 and 2021, and net section 1231 gains of $3,000 and $2,000 in 2024 and 2025. The 2025 gain of $2,000 goes on line 7. Line 8 is $7,000: $10,000 of losses less the $3,000 applied against the 2024 gain. The entire $2,000 gain is ordinary income and goes on line 12. For records, the 2020 loss is fully recaptured ($3,000 in 2024 and $1,000 in 2025), and $5,000 of the 2021 loss remains.
After line 8
Line 9 subtracts line 8 from line 7, not below zero. The portion of the gain above your prior losses is long-term capital gain on Schedule D.
Worked example, gain larger than losses
Suppose line 7 shows a $12,000 gain and line 8 shows $5,000 of nonrecaptured losses. Line 9 is $7,000. The $5,000 goes on line 12 as ordinary income and the $7,000 is long-term capital gain on Schedule D. Names and figures are made up.
More line pages in this set
Related lines: Form 4797 Line 6, Form 4797 Line 10.
Sources
- Instructions for Form 4797 (2025): the line-by-line instructions on this page. Page last reviewed or updated April 30, 2026. Read November 2, 2026.
- Form 4797, Sales of Business Property (2025): the printed line wording and arithmetic on the form. Read November 2, 2026.
Tax year 2025 form and instructions. Line labels were read from the IRS PDF posted on the date read; line numbers, dollar limits and cutoff years change between editions, so check them against the form for your tax year. This is the 2025 wording; the five-year lookback uses the five preceding tax years. Names in worked examples are made up.
Frequently asked questions
What is Form 4797 line 8?
Net section 1231 losses deducted in the 5 preceding tax years that have not yet been applied against a net section 1231 gain.
When do I leave line 8 blank?
When line 7 is zero or a loss, or you had no prior-year section 1231 losses, or they were recaptured in an earlier year.
What does line 9 show?
Line 7 less line 8, not below zero: the part of the gain that is long-term capital gain.
Where does the ordinary part go?
On line 12 of Part II.
Do I need to keep a record?
Yes. The instructions say that for recordkeeping you should track how much of each prior loss has been recaptured.
Not tax advice
This page summarizes IRS instructions, mostly written for the people who prepare the form, and is not tax, legal or financial advice. A CPA or an enrolled agent can confirm what a line means for your return. Everything runs in your browser; nothing you enter is sent anywhere.