It doesn't sound like you have much (or any) capital gains to prorate. "I bought this house for 80k and there were well over 40k in improvements". $3000 over $40,000? Was the $123K sale price before or after expenses of sale? $123,000 minus 80,000 + 43,000(+/-) = 0 capital gains.
It gets even more complicated if you have a capital loss.
You still have to recapture (pay tax on) the depreciation allowed or allowable. But, that's a single entry in the interview.
