Thanks for replying to my question. My sister in law bought the house at a very low price back in 1980, but she refinanced it so many times she had over 252,000 to pay back the mortgage. The selling price was over 400000.00. It would like she had a large gain but the mortgage balance was paid off.

She gets the maximum exclusion (she is single) which is 250,000 and closing costs and selling expenses about 40000. 

The remaining amount cannot use the mortgage payoff as a deduction if she had no improvements done on the house?