I own a rental property in Arizona, and I live in DE. I will either short sale the condo, or it will be foreclosed, this year. The debt is non-recourse under applicable Arizona statute. Given that it is non-recourse, I will not need to pay cancellation of debt income on the property. However, I understand that I will need to pay capital gain tax on the disposition of the property, equal to the difference of the value of the loan and the fair market value of the property. The current value of the loan is approximately $215,000, and the most recent appraisal of the property was for $140,000. What actions can I take to minimize capital gain tax on this disposition, and what expenses are included to calculate the basis of the property, other than its FMV (i.e. depreciation, repairs, etc.)?