We used to live in a single family home that was converted to a rental property few years ago. We reported all rental income and all related expenses including mortgage interest etc on Schedule E together with our tax return every year. We never included or claimed depreciation on the property.

We recently sold the property for a small capital gain amount. We are confused about the following:

1. We are in the 15% marginal tax bracket and we were told that we will not be taxed on for the gain (a zero capital gain liability). Is this correct?

2. Are going to be taxed on the depreciation recapture even though we did not take advantage and didn't claim depreciation in our prior tax returns? Should we amend prior years tax returns or claim depreciation for the last year of ownership?

3 What is the tax rate on the depreciation recapture? Is it taxed 25% flat or as ordinary income? Which IRS form we use to report the sale when we file next year return?

Your help is greatly appreciated!