Is depreciation recapture tax rate determined from amount of depreciation or from my income tax rate

Shurik

"The tax on depreciation recovery is determined by the amount of depreciation deduction you claim over the life of the property and your income tax rate."
I and my husband are now retired and we are going to sell the house that we have been renting out for 17 years with depreciation of $190,000.
My question is - our income tax rate will be calculated from the total depreciation amount of $190,000 or from our social security benefits of $36,000.

CoryF

Thank you for joining our community, Shurik.

This is a good question to contemplate. The depreciation recapture rule will be based on the income tax rate/bracket that you have as a result of the sale and your Social Security income. This rate will depend on the amount that you sell the property for as Social Security alone is not taxable income until it is paired with other income like the sale of the rental property.

For example, in 2023: If your sales price were $200,000 and your cost basis (minus the depreciation) was $10,000, you would realize a gain of $190,000 on the sale of that property. This would make the $190,000 (depreciation and gain) taxable income. At this amount, your Social Security income would be 85% taxable or $30,600 based on the amount you provided. For a Married Filing Joint return with income of $220,600 (190,000 + 30,600), you would have a tax rate of approximately 22% after a standard deduction.

Fortunately, you can create or log into your FreeTaxUSA account to make some 2023 estimations and see what may be owed on the sale of the property.

Let us know if you need further assistance.