Form 4797: 2025 Guide for Australians with US Assets

If you’re an Australian with direct business interests or property investments in the United States, you may have heard about IRS Form 4797. While this is a US tax form, it has direct implications for Australians who earn income from US-based assets. With cross-border investments on the rise and the ATO tightening its global reporting standards in 2025, understanding Form 4797 has never been more important for savvy investors and business owners.

What is Form 4797 and Who Needs It?

Form 4797, officially titled ‘Sales of Business Property’, is used by individuals and entities to report gains or losses from the sale or exchange of business property, including real estate, depreciable business assets, and certain involuntary conversions. For Australians, this becomes relevant if you:

• Own US commercial or rental property

• Operate a business in the US

• Sell or exchange US assets that were used for business purposes

The form distinguishes between different types of gains and losses, such as Section 1231 (real or depreciable property used in business for more than a year) and Section 1245/1250 (depreciation recapture rules). This distinction is crucial for determining how your income is taxed in the US—and potentially in Australia under the double tax agreement (DTA).

2025 Updates: What’s Changed for Australians?

Several important policy and reporting changes in 2025 are impacting Australians with US business assets:

• Stricter Global Reporting: The ATO’s 2025 compliance campaign is leveraging new international data-sharing agreements. If you file Form 4797 with the IRS, the ATO is now more likely to be alerted to your US transactions.

• Depreciation Schedules: The US Tax Cuts and Jobs Act’s bonus depreciation phase-out continues in 2025, affecting how much immediate deduction you can claim for US assets. Australians need to account for these changes when calculating capital gains or recaptured depreciation.

• Double Taxation Avoidance: The Australia-US DTA remains in effect, but 2025’s updates clarify certain offset procedures, reducing the risk of double taxation if you report correctly to both the IRS and ATO.

For example, if you sell a US rental property in 2025, you’ll likely use Form 4797 for the US side and may need to report the gain in your Australian tax return. The DTA allows a credit for US tax paid, but only if the transaction is correctly declared in both jurisdictions.

Common Mistakes and How to Avoid Them

Reporting foreign business property sales isn’t straightforward. Here are some pitfalls Australians should avoid:

• Misclassifying Property: Confusing personal-use property with business-use property can result in incorrect taxation or denied deductions.

• Ignoring Depreciation Recapture: US rules require you to ‘recapture’ prior depreciation as ordinary income—failing to do this can trigger audits or penalties.

• Overlooking ATO Implications: Not mirroring your US disclosures on your Australian tax return can flag compliance issues. The ATO is increasingly matching data with the IRS in 2025.

Real-world scenario: An Australian sells a US warehouse in 2025, reporting the transaction on Form 4797. The IRS notifies the ATO through the new cross-border reporting system. If the gain isn’t included in the Australian return, the investor may face penalties or a review.

Optimising Your Cross-Border Tax Strategy

For Australians with US assets, strategic planning is vital. Here are actionable steps for 2025:

• Maintain detailed records of all US property acquisitions, improvements, and depreciation schedules.

• Engage with a tax professional experienced in both US and Australian tax law for accurate reporting.

• Leverage the Australia-US DTA to avoid double taxation, ensuring all forms (including Form 4797) are correctly filed and referenced in your Australian return.

• Stay current with annual updates to US depreciation rules and ATO guidance on foreign income disclosure.

By proactively managing your obligations, you can reduce the risk of audits and optimise your after-tax returns on US investments.