The example is useful, thanks. I see that there's $125k of cap gains to pay for a move to a property of the same price. You're calling that a loss though, and I

The example is useful, thanks. I see that there's $125k of cap gains to pay for a move to a property of the same price. You're calling that a loss though, and I'm not sure I see it that way. Sure, if house prices hadn't gone up you could have moved from a $1M house to another $1M house and paid nothing. But in your example you're still $875k "in profit", so it's not really a loss, it's just a cost associated with a lateral move in the same area. If you downsize you actually realize some of those gains - of course not all of them because tax must be paid, but there's no avoiding taxes :)