On 160k in gains, a 20% cap gain would be 32k.There are no capital gains to pay in this scenario. Your calculation of $32K doesn't fit. The only transaction costs are the commission and seller concessions. If the house is in a high demand area and well taken care of, there should not be any seller concessions and no other additional seller closing costs since there will not be an FHA loan here.To echo the sentiment of others here, take the tax free $136K ($400K - $220K - $24K) and walk. Use it to invest in another property. It isn't often you get to cheat the tax man.On the rental note, ziggy29. One should NEVER by a rental property that produces negative cash flow. Period. By doing so, you are hoping that appreciation will bail you out along the way. Bad business. All rentals should be purchased with the intention of making a buck from the get-go. With $136K you should be able to put a nice down payment on a two to four unit property that will cash flow nicely and probably put a few bucks in your pocket as well.I don't recall what you said regarding your future living plans, but to echo a previous espoused thought, if you can rent for less than you can buy, including the tax effect of mortgage interest, you might consider renting. How about a nice tri-plex or four-plex and occupying one of the units. Its very easy to get a 90% mortgage on owner occupied rentals.Again, do not buy a property that will not cash flow for you. Its just not worth feeding the aligator.Good luck!John.