You outsmarted the IRS depreciation recapture tax, how clever! Nice try.

So you didn't take depreciation all the years on your rental property. The various expenses caused a loss each year, anyhow.

Now you want to sell it and pay only long term capital gain tax rates, which are much lower than regular income tax rates.

You outsmarted the IRS depreciation recapture tax, how clever!

Nice try.

Depreciation is a landlord's best friend. But it can come back to bite you when you sell the property. Depreciation recapture tax can be up to a rate of 25%.

This is called a section 1250 unrecaptured gain in IRS lingo.

The reasoning is that you should have claimed it, or could have. This is because the depreciation happened regardless whether you wanted it or not.

This is analogous to business expenses, which technically have to be claimed.

Although in certain instances one may want to show a higher income, they are still required to claim all deductions due to expenses. (Though there is no law disallowing you to throw your receipts in the trash, so there is a loophole when the expenses can no longer be proven, even if done intentionally).

So since depreciation doesn't depend on any proof (e.g. pictures of rotting wood etc.), it becomes an automatically required deduction. Thus resulting in depreciation recapture tax.