The provision for postponing capital gains on
a home sale, by buying a new home were eliminated in 1997.The new rules say The capital gain on the sale of
your primary home is not taxable (up to $250K, $500K married). To be eligible
you must have lived in and owned the home for at least 2 out of the 5 year
prior to sale.
The mortgage balance is not relevant. You may add the $150k
in home improvements to your original cost basis, as well as any expenses of
sale, in calculating your capital gain.
Any gain in excess of the $250K/500K will be taxed at long term capital gains
rates
