Try this with pen and paper.
The formula for calculating your cost basis on rental property is as follows:
* Purchase price
* + Purchase costs (title & escrow fees, real estate agent commissions, etc.)
* + Improvements (replacing the roof, new furnace, etc.)
* + Selling costs (title & escrow fees, real estate agent commissions, etc.)
* - Accumulated depreciation (as reported on your tax forms)
* = Cost Basis
And then calculating your profit or loss would be:
* Selling price
* - Cost Basis
* = Gain or Loss
Mortgage payoff is NOT a factor.
