For many people, their home is their most valuable asset. With the continuing increase in home prices, the gain realized on a sale could be significant. Provisions of the Taxpayer Relief Act of 1997 allow most to exclude from income the gain on the sale of a home without even reporting the transaction on their tax returns.

Exclusion requirements are based on the IRC section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for certain taxpayers who file a joint return) of the gain from the sale (or exchange) of property owned and used as a principal residence for at least two of the five years before the sale. A taxpayer can claim the full exclusion only once every two years. A reduced exclusion is available to anyone who does not meet these requirements because of a change in place of employment, health or certain unforeseen circumstances.