Selling rental property after taking deductions for full term questions

[CaddyGrn]

We are considering downsizing our home... it is a large home with two rentals upstairs and we live downstairs.  We have lived here for 20 years and have 7 years left to depreciate the rental portion.  The home is worth more than what we originally paid for it, so I am assuming we will have to pay capital gains on the 1/2 of the home we have depreciated over the years?  If we fully depreciate it and stay another 7 years before we sell, what does that do to our capital gains?  We live in California, but it is currently Federal Tax I am interested in learning about.  (one thing at a time).  We did refinance the home once to obtain a lower interest rate.

As senior citizens are there any options to avoid capital gains when we sell this property?

Any information or clues to help me understand what this may or may not cost us will be sincerely appreciated.  You may need more information.  Thank you for reading and considering my query.

[MissMCJ]

When you sell the home that was your primary residence you can exclude up to $250,000 in capital gains on the sale of the primary residences, or up to $500,000 if married and filing a joint return.  Anything over the $500,00 profit would result in capital gains.

When you sell a rental property, you pay back all of the depreciation that you have taken, so there is no tax advantage to waiting for the end of the depreciation period.

[AmeliesUncle]

Tax planning is usually best done with a tax professional that  look at ALL of the details and probe you with a bunch of questions.  But here is some general information.

Are the rentals completely separate units, with their own kitchens and entrances?  If so, there really isn't a way to avoid paying tax on that portion of the sale (except, see note later about senior citizens).  As was mentioned, the sale of your personal portion may be able to avoid up to $500,000 of the gain (assuming you are Married Filing Separately).

You didn't say why you want to downsize or your financial situation or if you would be willing to rent out the entire house while you move elsewhere.  Those can affect some recommendations for what would be a good thing to do (and is why sitting down with a tax professional can be particularly helpful for tax planning).

You did mention you were senior citizens, and that you live in California  (and said "we", so I am going to assume you are married).  To keep things simple, according to current law, if one of you dies, you get a "step up" in value of the home.  In other words, the 'cost' of your home resets to the Fair Market Value on the date of death (and all prior depreciation disappears).  If the house was sold the day after one of you died, there would be zero tax due.  So that could be a consideration about selling it.