@Bachatera Per @MikeinSC:
"The tax law, as I understand it, will allow you to use your original cost vs the adjusted depreciable basis when computing this gain (you still need to recapture depreciation on the sale), but if adding the amount of the original reduction you made creates a loss, you cannot take this loss. If you still have a gain after adding that amount back, you can use that in your basis.
I would add an amount as a separate item as a basis adjustment, as in a cost of the sale, to see if there is a gain or a loss. If you have a loss you will have to reduce that amount, if you have a gain, you are good to go.
Sale will be reported on form 4797 to see the computation of gain/loss."
Click this link for more info that may help you with Sale of Rental on Form 4797.
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