@robingadams - what you do with the proceeds has no bearing on the capital gain. That used to be the case, but went 'out the window' in 1997.
Your capital gain is
1) the selling price of the house LESS
2) the improvement made while you owned the home LESS
3) the purchase price of the house year ago LESS
4) the selling costs, the biggest one is normally the commission.
THAT is your profit on the house and is subject to capital gains tax. However, for the federal return, as long as you have lived in the home for 2 of the past 5 years, you can reduce that profit for tax purposes by $250,000 (filing single) or $500,000 (filing joint), What remains is then subject to capital gains tax.
State tax may work differently,
