re: Question re: Sale of Rental property and Capital Gains/1031 exchanges

Depreciation recapture is to prevent you from paying tax at capital gains rates on any gain attributable to the deductions for depreciation you were allowed at ordinary income rates. It does not change the amount of gain, it changes the rate of tax on a portion, or all, of the gain.

When doing a 1031 exchange you do not have to replace the propoerty on a one-for-one basis. You could find two, or more, properties to replace the one you dispose of. This should make it easier to sustain your cashflow from investments than having to find a single replacement. You should definitely seek some professional advice with respect to the 1031 exchange since the benefits of a properly executed one are enourmous, and the cost of a blown exchange permanent.