Rental depreciation is not excluded from tax calculation

[AllenZ1]

I am using TurboTax Home and Business 2024. I compared Federal Tax Due before and after I input the info of a rental property. I found that the tax due = (net income of the property + depreciation) * tax rate. How could it happen? The total tax due should be net income * tax rate, right? I double checked the depreciation data. Looks like there was nothing wrong when I input data from the previous year.

Can you please shed some light on what's going on here? Thanks very much!

[pk · Accepted solution]

@AllenZ1 , I don't know if you can actually simplify in general this way.  Generally, 

 Your Schedule-E  income  consists of   -- gross rent  LESS  Expenses   (  which is  allowable Expenses + allowable Depreciation for the year).  This  income can be  positive  or negative and up to  Passive activity limit.  This is then transferred to form 1040 as business income.  And along with your other incomes become your  AGI.  AGI less  deductions become  your taxable income.    Thus  depreciation for the year is an expense  reducing your ordinary income.  Therefore when you dispose off the property,  any gain  ( note that accumulated depreciation also reduces your basis and thus increases  gain ) up to   accumulated depreciation is treated as ordinary gain   ( known as recapture ). 

 Does that  kind of help in resolving  this issue for you  ?

[AllenZ1]

@pk Thank you for your clarification! I really appreciate it!