You'r missing 300k from your after tax sale proceeds. You could still afford the smaller house with 263k left over. You would make a 37k loss yes, but you could buy the new house. An important distinction in my opinion.
Of course all that assumes that you're not leveraged at all (paid-off morgage). If you're leveraged, price increases are generally a win even in the face of capital gains taxes on the increase.
Of course all that assumes that you're not leveraged at all (paid-off morgage). If you're leveraged, price increases are generally a win even in the face of capital gains taxes on the increase.