If I have a net loss carryover on my LLC and we sold the business property, how do I figure the recapture depreciation and will the gain be incorporated into my 1040 which is what we've been filing and can the be used to offset the gain?

Yes, the gain from selling your LLC's property flows through to your 1040, and your loss carryover can offset that gain, but depreciation recapture gets special treatment first.

Here is how it works. When you sell business property, the IRS requires you to "recapture" the depreciation you previously deducted. That recaptured amount is taxed as ordinary income, not as a capital gain. Specifically, for real property, the recapture is calculated under Section 1250 and is capped at 25% tax rate (called unrecaptured Section 1250 gain). For personal property like equipment, Section 1245 recapture is taxed at your ordinary income rate. The recapture amount is the lesser of your total gain or the total depreciation you took over the years. Your tax software or accountant calculates this on Form 4797.

Since your LLC is presumably a single-member LLC or a partnership filing as a passthrough, the gain and recapture amounts flow to your Schedule E and then onto your 1040. That part is straightforward.

Now, your net loss carryover, assuming it's a passive activity loss carryover, can generally be used to offset the gain when you sell the activity entirely. A full disposition of the business triggers the release of any suspended passive losses, and those freed-up losses can offset the gain including the recapture income. If your carryover is a different type, like a net operating loss, the NOL rules apply instead and can also offset the gain, though the calculation works differently.