Not correct. Your mortgage balance is NOT a consideration in the calculation of your capital gain.
Capital gain = net sale proceeds minus the adjusted cost basis of the home. The "adjusted cost basis" is the original cost of the home plus any capital improvements you made to the home. If part of your sale proceeds were used to pay off a mortgage, that is irrelevant to the calculation.
Example:
Original cost of home = $150,000
Capital improvements made by owner = $40,000
Adjusted cost basis = $190,000
Sale proceeds = $290,000
Capital gain = $100,000
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
