Calling all CPAs - Depreciation Recaputure Tax Rate

[Dave G.]

I've performed searches on this topic and cannot find anything definitive regarding my inquiry, so posting my own.

What will be the depreciation recapture tax rate I have to pay when liquidating a rental - flat 25% or what my ordinary tax rate is? And I am asking this specifically in a scenario where I can limit my earned income for a given tax year and sell property during that period. 

I am approaching retirement and will be able to live on non-retirement savings for a number of years, thereby not having any earned income. No W-2 income at all. So my ordinary tax rate should be zero by everything I can gather. So if my ordinary tax rate is zero, would the depreciation recapture tax rate be zero too, providing me an opportunity to not have to pay any depreciation recapture at all (or capital gains for that matter) ????

Thanks for your help.

[Michael Plaks]

Originally posted by @Dave G.:

Ok, so my Property B from above: 

• $44k capital gains
• $18k depreciation recapture
• No other income or gains whatsoever
• Married filing jointly 
• So AGI = $44k (ignore exemptions) ?

Then the marginal tax rate will be 12% ($19,751 - $80,250) and I will have a tax liability for depreciation recapture of 12%*$18k = $2160

Is this correct? And what would the capital gains rate be? 12% or 15% or ? I know I'm asking this in a vacuum, but just trying to understand the nuts and bolts before considering it within the bigger context of my finances.

Dave, the reason for your frustration is that you're trying to learn a fairly complex technical issue in an online post. For example, you calculated capital gains as the difference between the sale and purchase prices. However, depreciation recapture is really a part of capital gains and should be added.

Also, your situation can have many additional items at play.

But I will dance with you. If you really have no other income whatsoever, your AGI would be around $62k ($44k + $18k), and your overall tax would be zero.