The IRS rules used to allow you to roll over your cost basis in your house to a new, more expensive house. That allowed you to defer the capital gains tax on your profit on the house you sold and move all your equity to the house you bought. Eventually, the IRS would collect the capital gains tax when you sold your last house in the ladder. Now we have the $250k exemption for singles and $500k exemption for married couples filing jointly instead. We also have the new Obamacare tax of 3.8 percent on net capital gains that applies to singles with an AGI of over $200k and married couples of over $250k. That's AGI, not earned income.
Baby boomers here in Silicon Valley or in places like San Francisco, Westchester County or Northern New Jersey probably bought their first house in the mid-late 1970's or early 1980's and rolled the cost basis into a second or even a third house. The rules changed, and selling the current house, which in some cases is worth 10 times what they paid for their first house, will trigger a large capital gains tax, even after the exemption. Why sell and pay that bill just to downsize?