Back in 1997, the tax code was changed to exempt the first $250,000 in profit ($500,000 for couples) as long as sellers live in the house for two out of the past five years. That means a couple who bought their house in 1999 for $200,000, for example, won't owe capital-gains taxes unless they sell it for more than $700,000.

Even if your home sale gains exceed the exemption amount, there are still some ways to lower your taxes. You can use any money you spent on closing costs when you bought the house (not counting points you may have already deducted) or home improvements to increase your cost basis, which in turn lowers your taxable gain. To qualify, the home improvements must add value to your home -- such as building a new room, a swimming pool or adding central air conditioning. Basic repairs don't count.

For example, if a couple bought the house for $200,000, paid $3,000 in closing costs when they bought the home and spent $50,000 building a new room, their basis increases to $253,000. If they sell for less than $753,000, they won't owe a dime in taxes.

You could get stuck with a capital-gains tax bill, however, if you live in the house for less than two years. In that case, you would owe capital-gains taxes on a prorated portion of your profits (if you lived there for one year, for example, you're eligible for half of the exclusion). There are a few exceptions to this rule, however. You can still get the full exclusion if:

• You move because of a new job that is at least 50 miles farther away from your old home than your old job was.
  
  
• You must move for your health or the health of relatives in your care.
  
  
• You are affected by other unforeseen circumstances approved by the IRS, such as death, divorce, becoming eligible for unemployment compensation, multiple births from the same pregnancy, damage to the home from a natural or man-made disaster or an act of war or terrorism, and a few other reasons.

For details, see IRS Publication 523, Selling Your Home.