The question is not if you sell for less than you paid; but, is your basis greater than the sales price. Depreciation is always the biggest concern. You have been renting the property, claiming depreciation each year. You also claimed expenses while renting the property on your tax returns.
Your basis in the property is what you paid for it plus improvements you made that were not claimed MINUS all the depreciation you have taken plus expense of sale, commissions, etc.
For example: $98,000 purchase +0 improvements + $5000 sales expenses minus $15,000 depreciation = $88,000 basis.
Take your newly calculated basis and compare it to the sales amount to determine your capital gain.
Pretend you sell for $75,000 and you have a loss on the property. If you have a loss, you will not have capital gains.
I don't believe you will have capital gains regardless of your income level based on your scenario. You need to do the math with the real numbers.
The IRS is not concerned with mortgages. You can not deduct what you owe from your sales price, capital gains, anything.
The only other tax you may incur is state tax where you own the property. Each state has different rules. Here is a link to all states.
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