Have you each lived there at least two out of the last five years? If so, then you probably won’t have to report it or pay tax. If not, then you might owe tax. But you’d substract what you paid for it, the cost of certain improvements, and the cost associated with selling it. The mortgage balance is irrelevant to the tax calculation.
Purchase of a new home has nothing to do with whether you owe tax on the sale of the old home. That changed about 20 years ago, but it’s still a common myth that they are linked.
You won’t owe anything for capital gains. Even if you only paid $100,000 your gain would be $210,000. The exemption limit is $250k for a single person and $500k if married. You are good either way as long as you lived there for 2 years.
but doesn’t the sale still trigger a form to the IRS? They don’t know if it was your primary home or a vacation home, or investment property… I thought you’d still have to go through the paperwork, but end up not owing.
That’s only if it’s your primary home and you lived there a certain number of years in the past 5 years.
Lots of people try to declare their shore houses or investment rental property as their “primary” residence.