Yes, you are subject to capital gains tax, as on the sale of any property. But, you qualify for the personal exclusion on the sale of your home. See publication 523.
https://www.irs.gov/forms-pubs/about-publication-523
You can exclude the first $250,000 of capital gains from your income (or $500,000 if married filing jointly) as long as you owned the home at least 2 years, and lived in it as your main home for at least 2 years (731 days) over the 5 years prior to the sale. Since you sold the home on 12/16/24, the lookback period goes back to 12/16/19. As long as you lived in the home as your main home between 12/16/19 and 12/30/21, you can use the exclusion. You don't have to worry about special rules for damaged or destroyed property, since you qualify for the normal exclusion.
If your gain is more than $250,000, you will owe capital gains tax on that amount of the gain. It doesn't matter how you spent the funds after the sale.
However, there is also an issue of how to determine what the gain actually was. Since this was a federally declared disaster, you were eligible to report the loss on your tax return. You did not mention that, so I will assume you did not report a loss. (And, if insurance paid for rebuilding, then you had no loss.)
Your gain is the difference between the selling price and the adjusted cost basis. The adjusted cost basis in this case would be the price you paid for the home when you bought it, plus the cost of any improvements you made before the fire, minus the value of the insurance payout, plus the cost of rebuilding. Assuming the insurance exactly paid for the rebuilding, those two items cancel each other out. You can also include in your cost basis, certain closing costs from the purchase, and you can reduce the selling price by certain costs of selling (like real estate commission, advertising, staging, and any county or state taxes and fees that are not related to your mortgage -- taxes and fees you would have to pay even if there was no mortgage).
In turbotax, you list your purchase price, adjustments like closing costs and improvements, and the selling price. (Use the full selling price from the 1099-S, and include adjustments to the selling price like commission and advertising under adjustments to cost.) The first $250,000 is tax-free and the rest is subject to long term capital gains tax. Then, because of your low annual income, even if the gain is more than $250,000, some of the remaining gain is likely to be taxed at zero percent, and the rest at 15%.
This answer has been verified for accuracy by an Intuit expert employee
