You need to see an accountant, there are some concepts you haven't addressed.
1. The basis of your depreciation is what you actually paid. This includes the purchase price, and some (but not all) of your closing costs. Allowable closing costs for a home are listed in publication 523 on page 8. But since land doesn't depreciate, you have to reduce your depreciation basis by the value of the land.
2. If the hot water heater was part of the property at closing, you don't include it separately, it is part of the overall $385K price. If you purchased it after you placed the property in service as a rental, you list it as a separate asset with a recovery period of 27.5 years. However, if the cost is less than $2500, you may qualify for a safe harbor that allows you to deduct it as an expense, rather than taking depreciation. Expensing the hot water heater is more advantageous because you don't have to recapture depreciation when you sell.
3. To correct prior depreciation, you either have to file amended returns for all those years, or you need to file form 3115, Application for Change in Accounting Method. This form is not easy to fill out and is not supported by Turbotax.
I suggest you need a professional tax preparer to get you out of this mess so you can correct the prior depreciation and pay the least tax on the sale of the property.
