re: Tax question on a home sale - ordinary income vs capital gains

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But I'm trying to figure out why a home sale is being taxed as ordinary income and not capital gains.

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Without looking at your tax return, I am assuming you are dealing with depreciation recapture, which is ordinary income.

Basically, if you took 30K in depreciation deductions over the rental years, then that deprececiation reduced your basis in the house. Then, the gain attributable to that reduced basis come back as ordinary income.

Any gain above that should be taxed as long term capital gains, given what you have stated.

Simple example: Buy house in 2015 for 200K, take 30K depreciation over the years, sell house in 2022 for 250K, pay $15K closing costs at sale (commission, cover buyer costs, whatever).

Basis of home at time of sale: 200K - 30K = $170K
Net proceeds - $250K - $15K - $235K

Gain: $235K - $170K - $65K

Ordinary gain: $30K

LTCG: $65K - $30K = $35K

Now, if the numbers worked out such that the amount of depreciation taken over the years exceeds your total gain, then all of it would be depreciation recapture, and no long term capital gain.

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it's making me ineligible for credits for my children.

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Nah. Those credits are based on total income, including cap gains, so this would only be an issue if you had other cap losses you were trying to offset against cap gains.