I owned and recently sold an apartment that I rented to my son. I had a loss, largely due to depreciation, in each of the 2.5 years that I owned the apartment. I believe the depreciation will be added back to my basis when I report the sale, and as a result I will be taxed on that depreciation. I never received any tax benefits from depreciation expenses, since I recorded losses each year that were equal to (or greater than) the depreciation. My income is above $150,000, which affects my ability to take advantage of losses. Will I be able to deduct the disallowed depreciation expenses from the sales price when I report the sale?

Would I have been better off declaring that this apartment was not rented for profit? As a side note, my son paid less than market rent, but I still reported the rent as income.