No, you do not. If you buy a house for $1M, sell for $2M, you pay taxes on $500k. Those taxes are ~34% if you're in California, so you pay about $150k in taxes. You buy a house for $1.6M, you have $250k left, not $400k.

This is not correct according to the 2 CA tax accountants I just spoke in the last 2 weeks. I literally am researching this exact situation right now.

https://www.irs.gov/taxtopics/tc701

Where's your source?

I'm looking at the exact same source you are. What part of what I said is not correct, exactly? The capital gains are $1 million. $500k of it is excluded (assuming you're married filing jointly). The rest gets taxed.

If you think that's incorrect, what do _you_ think happens with taxes when selling a home for $2 million that was bought for $1 million?

> I said = 2017 - Sell house for $2M

> I said = 2017 - Buy new house for $1M

> you said = But it might be (for the "buy new house") $1.6 million, not $1 million, in your example...

> I said = so they can still afford it.

> you said = You don't get to keep the whole $2M. That's the point.

So, let's do this again.

1. Sell house for $2M

2. Buy house for $1.6M as you suggested

3. Congrats you now have $1.6M in illiquid assets and $400k in liquid assets (cash)

Note - I recognize that my original example was buy at $1M and sell for $2M, where you are correct you're not taxed on the first $500k and the remaining $500k is taxed at capital gains. I also recognize that this whole scenario is purely illustrative and doesn't take into acount all of the transation fees.