The $40,000 income threshold (before which capital gains are taxed) that you have heard of is based on ALL of your "taxable income", including the capital gains. It works like this example:
$30,000 other income (you said less than $40,000) + $300,000 capital gains + $40,000 (rough estimate) depreciation recapture = $370,000 total income; less the $12,550 standard deduction = $357,450 taxable income. Less the $40,525 (12% tax bracket/capital gains tax ) threshold = $316,925 of your income will be in the higher (than 12%) tax brackets. Since this is more than your $300,000 capital gain, all of the gain will be taxable (at 15%). Depreciation recapture is taxed as ordinary income, but not more than 25%.
