Sale tax includes rehab costs??

[Tzook Bar Noy]

I have read many articles about the taxing of your property, depreciation etc.

One thing that is lacking everywhere is when you sale your home does the IRS include your rehab cost in the calculations?

For example:

I bought a home in 50K

I rehabed it in another 20K

after more then a year I sell the property in 90K

So:

1) I get taxed on my: 

90K

- 50K (initial purchase price)

- 20K (rehab cost)

= 20K (total profit to be taxed on)

2) I get taxed on:

90K

- 50K (initial purchase price)

= 40 (total profit to be taxed on)

thanks for all the cpa guys here and other experts that went through it