During 2 years of rental, you did or were entitled to take depreciation based on the lower of your cost basis or the FMV at the time. 2 years of depreciation based on an FMV of $175,000 is about $13,000. That reduces your cost basis for the sale to $322,000. Since you sold for less than your adjusted cost basis, you don't owe capital gains tax or depreciation recapture tax.
