According to the National Association of Realtors in an article dated 9-10-05.

CAPITAL GAINS

The appropriate level of taxation for capital gains (the amount realized when property held for investment is sold) has been a subject of tax policy debate throughout the history of the income tax. For at least 50 years (with the exception of the period from 1986 - 1990), capital gains have been taxed at rates well below the maximum tax rate for ordinary income. During the past 25 years that rate has ranged from a high of 49% to the current rate of 15%. Since 1997, depreciation allowances taken in prior years are "recaptured" (or taken back into income) and taxed at 25% when investment real estate is sold. Prior to 1997, depreciation recapture amounts were taxed at the same rate as capital gains. Capital losses are deductible in full against capital gains. In addition, individuals may deduct up to $3000 of capital losses against ordinary income in each year, with any remaining excess losses being carried forward to future tax years.

For full details and verification, please consult your tax adviser.

___________________________________________________________
CAPITAL GAINS ON THE SALE OF YOUR HOME.

Internal Revenue Code 121 is very generous to principal residence sellers. After as little as 24 months of both ownership and occupancy, a home seller can qualify for up to $250,000 tax-free capital gains. A husband and wife can qualify for up to $500,000 tax-free principal residence sale profits if they file a joint tax return in the year of home sale. Only one spouse's name need be on the title, but both spouses must meet the occupancy test of 24 months within the 60 months before the sale.
IRC 121 does not require 60 months of home ownership if the seller meets the 24-month principal residence occupancy test. But there is one exception.
If the property was acquired as a rental residence in an Internal Revenue Code 1031 tax-deferred exchange, then it must be owned at least 60 months to qualify. However, owner-occupancy is only required for 24 of those months.
If, during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it as your main home for at least 2 years, you can exclude up to the maximum dollar limit. However, you cannot exclude the portion of the gain equal to depreciation allowed or allowable for periods after May 6, 1997.

For full details and verification, please consult your tax adviser.
___________________________________________________________
1031 Tax Free Exchange

by McNeese Title...see link at right

For full details and verification, please consult your tax adviser.