Sounds like a flip to me! If you showed it as rental and he has proof he tried to rent in 2015 you would show the sale on 4797. The closing cost from original purchase should have been included in the basis for depreciation or amortized over the life of the loan depending what they were. see how it is a minimal amount I would just add to 2016 basis but others will disagree and technically may be correct. If a gain it would be short term ordinary income.