To expand a little on Gail's answer. If it were your residence, you would need to live in it for any two of the last five years to qualify for the capital gains exemption of up to $250K for a single person ($500K for married couples). Any taxable gain (income tax separate from capital gains) is usually calculated on yoru basis (purchase price) less any improvements. For investment properties, it is your basis less any repairs. Check with a qualified CPA as it is my understanding, the IRS classifies "repairs" different from "improvements".