Taxation of depreciation claimed on real property works as follows:

For a principal residence on which depreciation was taken up to May 7, l997, the gain is not taxable as long as it doesn't go over the $500,000 or $250,0000 threshold.

For a principal residence on which depreciation was taken after May 7, l997, the amount of gain equal to the depreciation taken is taxed at a maximum 25% rate, because that portion of the gain is not eligible for gain exclusion.