@336452
no, the law about postponing the game by buying a new home was eliminated in 1997. Now, each home sale is treated as an entirely separate transaction, and it doesn’t matter how do you spend the money afterwards.
Each person can exclude up to $250,000 of capital gains if they owned the home at least two years and lived in the home as their main home for at least two years of the past five years. in your case, you have a total capital gain of about $1 million, or $500,000 per spouse. You appear to qualify to exclude $250,000 of the gain from taxation, so you will pay tax on the other half of the gain. You may be able to reduce the capital gain by documenting as many adjustments as you can – both closing costs and improvements.
