Changes to the federal tax code have improved the ability of homeowners to profit from the sale of a principal residence.

Based on the Taxpayer Relief Act of 1997, a married couple filing their taxes jointly pays capital gains taxes only on that portion of home sales profits that exceeds $500,000. Single taxpayers, heads of households, and married persons filing separately may retain a profit of up to $250,000 before paying capital gains tax. To qualify for this exemption, you must prove that you have owned and lived in the home for two of the five years prior to the sale. Homeowners may use this tax-free provision every two years.

The Jobs & Growth Tax Relief Reconciliation Act of 2003 reduced the capital gains rates from the previous rate of 20% to 15% for higher income taxpayers and from 10% to 5% for lower income taxpayers, for home sold after May 6, 2003. In 2008 the 15% rate continues for higher income taxpayers; while the 5% lower income rate drops to 0% for the 2008 tax year only. On January 1, 2009, the long-term capital gains rate will once again be 15% and 5% through 2010.

The law allows capital gain exclusions whether you "buy up" to a more expensive home or "buy down" to a less expensive one.

For a free consultation to discuss which type of mortgage loan will work best for you, call Victoria Spannaus at Wachovia Mortgage Corp. at (800) 741-7813 or 910-692-6225.