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Yes, you owe capital gains tax on the gain from the sale of the house that was not depreciated.
For the $27K that was depreciated it is recaptured when you sell the house and is taxed at the same tax rate as the rest of your income.
You report that sale of the rental property in the rental section of TurboTax.
Tip: Take your time and pay close attention. There's a lot of info and it's easy to miss if you're in a hurry.
I apologize, but your response has my head turned inside out.
"Yes, you owe capital gains tax on the gain from the sale of the house that was not depreciated. "
If I bought the house at $177K in 2004, depreciate it by $27K, down to $150K. I sell the house for $150K.
I would not owe any capital gains, correct? Given the scenario, I have a gain of $0, correct?
"For the $27K that was depreciated it is recaptured when you sell the house and is taxed at the same tax rate as the rest of your income. "
How does the recapture work exactly? Given my scenario, I sell the house for $150K, why would I be taxed on the $27K loss?
I'm really confused.
Oh to clarify one thing. I haven't yet sold the house, so I won't be doing the "reporting of a sale". I'm planning on selling the house next year. I was just filling out my taxes this year and was looking into the tax situation surrounding the future sale of the house.
You are correct, if you don't have a gain on the sale then you will not have any taxable income. What @DianeC958 meant was if you did have a gain, then you would have to pay tax at ordinary rates on the portion of gain represented by the depreciation taken on the property, thus the depreciation would be "recaptured."
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