The money earned from a home sale was directly used to pay for a new home. Why do I have to pay taxes on that?

[xmasbaby0]

The last time using money from the sale of a home to purchase a new home was relevant was 1997.

If your gain was more than  $250,000 filing Single, or more than $500,000 filing Married Filing Jointly the sale must be reported on your tax return.  Whether you re-invested the gain in to another house is irrelevant.  If you  have a Form 1099-S go to Federal>Wages and Income>Less Common Income>Sale of Home (gain or loss)

If you owned and lived in the home as your primary residence for at least 2 of the last 5 years on the date of the sale, you do not have to report the home sale if the gain is less than $250K filing Single, or less than $500K filing Married Filing Jointly (and you both owned and lived in the home for at least 2 years).

• If you are using online TT, you need Premium software to report the 1099-S

TO ENTER THE SALE OF YOUR PRIMARY HOME

1. Start with Federal 
2. Click on Wages and Income 
3. Select Choose what I work on
4. Scroll down to Less Common Income
5. On Sale of Home (gain or loss), 
6. Click the start or update button

NOTE:   If you have ever used the home as rental property or claimed a home office, you have more information to enter

https://ttlc.intuit.com/turbotax-support/en-us/help-article/homeowner-tax-credits-deductions/selling...

[DoninGA]

The option to defer the capital gains from a home sale by purchasing another home at the same or higher price the selling prior of the previous home was removed from the tax code in 1997.

All the gain on the sale of the home is taxable as a long term capital gain if the home was in your possession for 1 year or longer.