When you sell a property that was depreciated, you must recapture the amount of the depreciation you took, up to the amount of the total gain. That amount is taxed at ordinary income tax rates and is not eligible to be excluded.
Here is how your transaction will look using the figures you supplied:
Purchase price $128,000
Improvements + $50,000
Depreciation - $21,000
Adjusted basis $157,000
Sales price $190,000
Less adjusted basis $157,000
Gain on sale $33,000
Gain taxed as ordinary income $21,000
Amount eligible to be excluded $12,000
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