In The Past, as long as a homeowner bought a replacement property more expensive than the one being sold, the gain on this type of sale was deferred. Also, buying a less expensive home could trigger tax consequences. However, if a taxpayer was over 55 years of age, a once in a lifetime exclusion of $125,000 was available as long as certain rules were met.

The New Rules apply to the sale of any principal residence made on or after May 7, 1997. Couples filing a joint tax return can exclude up to $500,000 of gain on the sale of a principal residence. Single return filers can exclude up to $250,000 of gain.

• To qualify for the exclusion the taxpayer must have occupied the home being sold for 2 of the last 5 years.
• A home may have been treated as a rental property so long as it has been a principal residence for 2 of the last 5 years.
  There is a formula for partial exclusion for taxpayers who cannot meet the two year requirement. Check with your accountant.
• These generous new exclusions do not apply to 2nd homes or vacation homes.

• The new exclusions replace the old one time exclusions. It now allows homeowners who meet the requirements to make a tax free profit on the sale of a home without having to reinvest in another.

For more information recommend contacting http://www.wwlaw.com/taxact.htm and check out The New Tax Law.

To find out more about Capital Gains try reading this article: http://taxes.about.com/od/taxplanning/qt/home_sale_tax.htm

To calculate your gains try this tool: http://www.moneychimp.com/features/capgain.htm

Very interesting stuff!