@John-AG wrote:
It was an investment property. How is the depreciation tax calculated? And can the loan interest be added as expense to be deducted from the proceeds to determine the capital gains tax I owe?
If the investment property is income-producing (schedule E), then you deduct the loan interest against rental income.
If the property is not income producing, there are two options for taking some tax advantage from the interest you paid to buy the property, but they are not part of the capital gains equation. Investment interest is handled differently and you would have to file amended tax returns for previous years to get any benefit. We can discuss that further if you want more information.
Land is never depreciated. Building on land are depreciated if they are placed in service to produce income. So again, if this was income producing property, your depreciation was or should have been calculated on schedule E. The part of your capital gains that is due to recapture of depreciation is taxed as ordinary income up to 25%; in your case, if your income is less than $78,000, then your recapture will be taxed at 10%, 12% or 22% depending on what your income actually is. Then the rest of the gain is taxed as long term capital gains at 15%.
If this was land, or if you bought land with buildings but never placed them in service, then you don't have depreciation to recapture.
