DEAR BOB: I bought my home for $20,000 in 1965. Amazing, huh? I am told by a real estate agent it is worth $600,000 today. He said I can deduct my $20,000 cost, plus a single-owner home sale, $250,000 tax exemption. But can I avoid tax on my remaining $330,000 profit by using the sales proceeds to buy a replacement home? – Kat C. DEAR KAT: No. Your real estate agent is correct that you can subtract your $20,000 cost basis (plus the cost of any capital improvements you added during ownership) and your $250,000 principal residence sale tax exemption from the sales price to arrive at your $330,000 taxable capital gain. Also, you can subtract other sales costs, such as the real estate sales commission. Purchase Bob Bruss reports online. That result presumes you owned and occupied the home as your principal residence an "aggregate" two of the last five years before its sale, as specified in Internal Revenue Code 121. Using the sales proceeds to buy a replacement principal residenc...
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