Must I buy a more expensive home to avoid taxes?
When I sell my home, do I have to replace it with a more expensive home to postpone taxes on the sale?
No. In fact, you don’t have to reinvest in another house at all. If you meet certain qualifications, you can use your sale proceeds for whatever purpose you choose – without having to pay tax on your profit in the sale.
The Taxpayer Relief Act of 1997 eliminated two longtime provisions in the tax law. Under the old rules, taxpayers age 55 and older had a once-in-a-lifetime opportunity to exclude $125,000 of gain on the sale of their principal residence. In addition, once every two years, you were allowed to roll over the gain from one house to the next as long as you purchased a replacement house of equal or greater value. Doing so allowed you to postpone tax on the gain.
Now, you can no longer roll over the gain from one home to another, even if you want to. And the gain exclusion for those age 55 and older no longer exists. However, individuals can exclude up to $250,000 of profit ($500,000 for married couples) if you meet certain requirements
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