sale of Seattle home. since you mentioned you owned it and both of you occupied it for 2 out of 5 years your entitled to the full home dale exclusion of $500,000 except that depreciation taken while a rental is recaptured as taxable section 1250 gain. you mentioned the cash you walked away with but that may not be what you use.
gain =
selling price
less cost including improvements
less selling expenses
add depreciation larger of allowed or allowable
up to $500,000 of the gain is excludable except for the amount of depreciation.
example 1) gain $450K only the amount in excess of the depreciation is excludable
example 2) gain $750K $500K excludable the excess gain to the extent of depreciation is taxed as section 1250 capital gain (maximum tax rate about 25%) the excess is taxable at the long-term capital gain rate which varies based on a number of factors but would be less than the section 1250 rate
as to the new home no specific reason was given for sale like health, change of job location or certain other circumstances. without any of these any gain would be taxable as long-term capital gain while any loss would not be deductible.
normally there has to be 2 years between sales for the second home to qualify for the full home sale exclusion. However, there could be a partial exclusion if the reason for the sale of the second home was due toto issues of health, change in place of employment or unforeseen circumstances. there are specific criteria for each of these.
