You have to pay tax on “depreciation recapture”.
It may best be explained by example” you bought the property for $100K and sold it for $98K, an apparent $2000 capital loss. But during the time you owned it, you claimed (or should have claimed) $20K in depreciation expense deduction on Schedule E.
Instead of a $2K loss, you will show an $18K gain on your tax return (100K -98K + 20K = 18K). Depreciation recapture is taxed at ordinary income rates, not long term capital gains rates, but at not more than 25%.
