If you sold business property during the year, Michigan may require additional calculations beyond what was reported on your federal return. That's where Form MI-4797, Adjustments of Gains and Losses From Sales of Business Property, comes in. Michigan uses this form to determine whether any gains or losses reported federally need to be adjusted for Michigan income tax purposes.
In many cases, your federal information can transfer directly into the Michigan return, making the process much easier.
Program Entry
To access Form MI-4797 in the program:
- Select State.
- Edit the Michigan return using the three dots menu.
- Select Income Subject to Tax.
- Choose Adjustments of Gains and Losses From Sales of Business Property (MI-4797).
What Is Form MI-4797?
Form MI-4797 is used to report Michigan adjustments related to gains and losses from the sale, exchange, or disposition of certain business property. Michigan generally follows federal reporting, but adjustments may be required when Michigan tax law treats a gain or loss differently than federal law.
The form is commonly used for:
- Sales of business property.
- Depreciable business assets.
- Real property used in a trade or business.
- Certain casualty, theft, or involuntary conversion transactions.
- Gains and losses reported on federal Form 4797.
When Is MI-4797 Required?
According to Michigan's instructions, Form MI-4797 should generally be used only when adjusting Michigan taxable income for:
- Gains or losses from certain property located outside Michigan or otherwise subject to Michigan allocation rules.
- Section 271 adjustments involving property held before October 1, 1967.
Michigan specifically notes that business income subject to apportionment should generally be reported on Form MI-1040H rather than MI-4797.
Do You Want to Pull Federal Form 4797 Transactions to MI-4797?
Yes
Choose Yes if federal Form 4797 was completed as part of the federal return.
When selected, the program transfers eligible transactions from the federal return to Michigan Form MI-4797. This is the option most taxpayers will use because it automatically imports the transaction details already reported federally.
After the transfer, enter any Michigan-specific adjustments if necessary.
No
Choose No if:
- You do not want to import transactions from federal Form 4797.
- You need to manually enter Michigan gain or loss information.
- Michigan reporting requires different information than the federal return.
This option is generally used in limited situations where manual entry is necessary.
What Types of Property Can Be Reported on MI-4797?
Transactions that may be reported on MI-4797 include:
- Business equipment.
- Machinery.
- Buildings used in a trade or business.
- Rental property.
- Business-use land.
- Livestock used for business purposes.
- Certain involuntary conversions.
- Other qualifying business assets.
In addition, the Michigan instructions contain reporting guidance for gains and losses from casualty and theft events reported on federal Form 4684.
Special Rule: Section 271 Adjustments
Michigan provides a special adjustment under Section 271 of the Michigan Income Tax Act for property held before October 1, 1967. When applicable, the gain or loss subject to Michigan tax is determined using a specific holding-period calculation.
Because these adjustments involve property acquired decades ago, they are uncommon for most taxpayers filing today.
How Does MI-4797 Affect Your Return?
Information reported on MI-4797 may:
- Increase or decrease Michigan taxable income.
- Adjust gains or losses from business property sales.
- Affect Michigan gain and loss calculations.
- Change the amount of Michigan tax due or refund received.
The impact depends on whether Michigan requires a different taxable gain or loss amount than the one reported on the federal return.
Important Filing Requirements
When filing Form MI-4797:
- Include Form MI-4797 with your Michigan return.
- Attach a copy of the federal Form 4797.
- If casualty or theft transactions are involved, Michigan may require a copy of federal Form 4684 and supporting schedules.
- Keep documentation supporting the sale, exchange, or disposition of the property.
Notes
- Most taxpayers who completed a federal Form 4797 will select Yes and allow the program to transfer the transactions automatically.
- Only enter Michigan-specific adjustments when Michigan treatment differs from federal treatment.
- Business income subject to Michigan apportionment is generally reported on MI-1040H, not MI-4797.
- Form MI-4797 is separate from MI-1040D, which is used for Michigan adjustments to capital gains and losses.
- Retain copies of federal forms and any supporting worksheets used to calculate Michigan adjustments.
For more information, please see MI-4797 instructions here.