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.
