the difference between the 135 that you contracted for and the 175 cash that the seller actually received is either an increase to basis (I would argue that you actually “paid” 175) or some kind of commission or selling expense. either way it decreases your income and you’re probably safe reporting it either way.
but it’s not capital gain. it’s regular income taxed at marginal rates plus SE tax.
It appears that you purchased for $205K – $135K mortgage balance plus $70K resale profit rebated to seller.
On top of this it appears you put another $15K in fixup into the property, which brings your total cost basis to $220K. With a sale price of $250K, you have $30K profit from your flip.
Ordinary income tax plus self-employment income tax apply to the $30K.