Understand that depreciation is not a permanent deduction. When you sell rental property (or any other property used for business) you are required to recapture all depreciation taken in the year of the sale, and pay taxes on it. If you do not depreciate the property, then you are still required to recapture and pay tax on the depreciation you should have taken. Two things happen in the year of sale with depreciation recapture.
1) Recaptured depreciation is added to your AGI for that tax year.
2) The recaptured depreciation has the potential to bump your AGI into the next higher tax bracket. Weather it does or not, depends on the numbers.
But the recaptured depreciation itself will be taxed anywhere from 0% to a maximum of 25%. What rate you get, just depends on the numbers.
