Sellers misled about real estate tax break

Large capital gains can't be erased with another purchase

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DEAR BOB: Due to a job promotion and transfer we must sell our house of 21 years. Our nice problem is the net profit will be about $625,000. My wife and I are aware $500,000 of that amount for a married couple will be tax-free, thanks to Internal Revenue Code 121. However, my insurance agent told me that if we buy a replacement principal residence of equal or greater cost, we could also avoid paying tax on the additional $125,000 capital gain. Is this true? --Cheryl R. DEAR CHERYL: No. I hope your insurance agent knows more about insurance than he does about income taxes. Purchase Bob Bruss reports online. Since 1997, purchase of a replacement principal residence has nothing to do with avoiding capital gains tax on the sale of a former principal residence. Your insurance agent is nine years behind the times. But the good news is the maximum federal long-term capital gains tax rate is only 15 percent, plus any applicable state tax. That is a small price to pay for enjoying your huge ca...