Thanks for your response. The house was sold for $200,000 (there were costs that lessened amount realized) and depreciation was $12k. This was not taken on the rental but is the allowable depreciation. House was bought for $75k in the early 80s. Are you saying the12k should be taxed? The gain is below the 250k exclusion even if I added the 12k to the 200k. I am not sure I understand exactly what you are saying.