Sale of Rental Office Building -want to eyeball these calculations -We are retired now, & our annual taxable income is 50k from the rental building & another 75 k from Investment Portfolio (Dividends + Cap gains).We file a Joint Tax Return on $125 k incomeWe built a Rental Office Building in 1999 for 450k, we have taken Depreciation (No Land Cost) totalling about 210K, let us suppose the proceeds after we sell the building - selling transaction costs are 500k.I am assuming the following, please correct me if I am wrong - Adjusted Cost Basis = 450 - 210 = 240 KDepreciation Recapture = 210 k (500k - 240k ) at 20% = $42000 Capital Gains = 50k (500k - 450k) at 15% = $7500Total taxes owed = $42000 + $7500 = $49500$500k (Net Proceeds) - $49500 (Taxes) = $ 455,000 Net after Taxes paidAm I going wrong ??

Of course don't take out a loan just for the deduction, but it does need to be considered when paying off loans, because your taxable income will increase.Annual inflation rate ranges from 1-3%, which means a 3.5% loan is close to getting free money.

Your portion of capital gain is already $800k, of which only $500k is exempt, so $300k is taxable. 

After that, when you do sell, the portion of your capital gain attributed to your period of rental use will be taxable, while the rest of your capital gain can be excluded subject to the $250K/$500K limitations.  

I thought we could at least reduce our taxable income by creating an LLC to manage the properties, taking draws only when needed to purchase more properties.  

It's very possible that could be done without a taxable event as you have a capital account in the LLC and the property may offset the capital account. 

@Christian Manhard if I'm doing my math correctly it wouldn't help, because you'd pay yourself from the LLC thus reducing your taxable income by the same amount you increase it on the other end.

@Dorian Jones If you're going to cash it out it may make sense to wait until the year after you quit your W-2 job since you could be in a lower tax bracket.If you convert it to a Roth IRA it would be taxable now but you would be able to cash out the full amount you converted without a penalty after 5 years. 

A large component of what I am looking to do is both passive income, but as to not try to increase my taxable income so although taxes are not the sole reason they are a big component of the selection below.  

There should not be a taxable event there