We are getting ready to close escrow on a rental with long term capital gain and depreciation recapture. We expect to have considerably less ordinary income in 2019 than we have in 2018 due to retirement. Does the capital gain change how our ordinary income is taxed making it better to close escrow in 2019 since we will have lower income? I think in either case the capital gain will be at 15% for us but was wondering if it will bump our ordinary income tax bracket higher?
The depreciation recapture as well as the gain (if sold at a gain) will definitely increase your AGI. The recaptured depreciation will be taxed at a minimum of 15% and a maximum of 25%. Now if you've been showing a loss on the SCH E each year it was a rental (and I'm confident you did if you had a mortgage on the property) then those losses will offset the gain, thus reducing the AGI. If those carry over losses exceed your gain, then once the taxable gain gets to zero, the remaining losses will be realized against other, ordinary income in the tax year you close.
Thank you Carl. I think we have the answer we need to postpone escrow closing until the new year. We did have a mortgage but I don't think showed a loss very many years - low interest rate and relatively small loan.