Simple answer: If the house is worth $250K and has a $100K mortgage, you have made a gift of $150K ("gift of equity"). You do not have a reportable sale*, only a gift, to report. The $40K in depreciation transfers to the new owner (they pay tax on it if and when they sell the house). Your cost basis of $150K also transfers to the new owner (they pay the capital gains tax, if and when they sell it).
But, as others have said, taxes aren't simple. Professional help may be warranted.
* you do not have a sale because the sale price ($100k) does not exceed your adjusted basis (Edited, per @tagteam 's reply below).
