My wife and I are horribly confused with the potential sale of our rental.

We purchased our home in AZ for $350k in 2005 and used it as our primary residence until 2011, when I took a job in another state. The market was horrible, so we rented it out and plan on renting it out for another 5-7 years. The fair market value (FMV) was approx. $210k in 2011.

If we were to sell the house in a few years for $250k (which is unlikely, but makes for easy math) and claiming $20k in depreciation, it seems the sale falls between gains and losses. How do we report this in our taxes? We aren't planning on ever claiming a loss on the sale from a business perspective, but shouldn't a gain be calculated using the original purchase price and not the 2011 FMV?

This was my understanding of IRS Pub 551, but I'm putting sample numbers in TurboTax, and it keeps reporting a $20k gain on the sale. If we're going to be taxed on the gain from the value when we converted to a rental, I think we'd rather take the loss and sell the house within the 5 year window to avoid capital gains tax. Any thoughts?