What are the tax penalties/repayment when I sell my rental property? How can I avoid penalties?

[VolvoGirl]

Tax penalties?  Don't think there are any.  You have to pay tax on the recaptured depreciation and on any gain if you sell it for more.

[DoninGA]

What penalties or repayment are you referring to?  Did you not report the rental property income or depreciation for prior tax years?

[res0me5h]

"Penalties" was obviously an incorrect word.  I should have said repayment against prior year depreciation deductions.... Thanks.

[res0me5h]

So the only 'relief' I may get is if I use the rental as my primary residence for 24 months?

[TomYoung]

Depreciation will still be recaptured.

[res0me5h]

Thanks, Tom!  Your info was REALLY helpful!

[TomYoung · Accepted solution]

The direct answer to your direct question - now that we know that you're talking about depreciation recapture - is "you can't" except if you properly do a Sec 1031 ("Starker") exchange.

https://www.washingtonpost.com/realestate/starker-exchange-lets-you-defer-capital-gains-taxes-on-inv...

Of course that really doesn't "avoid" the recapture, but it does delay it.

Tom Young