I did not have income in the year of sale.
That in no ways means you did not sell at a gain. Upon closing the sale, the absolute first thing that was done with "ANY" proceeds from the sale, was to pay off "your" existing mortgage on the sale. That payoff amount is taxable income (initially) to you the seller. There is absolutely no deduction for the mortgage principle payoff - only the interest paid at the time of the payoff was deductible. That's it.
When you sell you are required by law to recapture depreciation (I know you know this already). The typical way of looking at it is so say that your cost basis is reduced by the depreciation amount. But "typical" doesn't work for everyone.
form 4797 calculated gain by subtracting the adjusted basis of the property from the sale price and adding accumulated depreciation.
That tells me that you total tax bracket for the tax year does not exceed 25%. Remember, recaptured depreciation is taxed anywhere from 0% to a maximum of 25%. A different calculation for that recaptured depreciation would have occurred if your AGI was to put you in a tax bracket above 25%, so as not to tax the recaptured depreciation at more than 25%. (I might be backwards on this, and the calculation performed for you by the program, was because your AGI *does* put you in a higher tax bracket.)
