What's the best tax break available to Jane and John Q. Public? If they're homeowners, it's selling their house. Homeowners already know the many tax breaks that Uncle Sam offers, most notably mortgage interest and property tax deductions. Well, he also has good tax news for home sellers: Most of them won't owe the Internal Revenue Service a single dime.

When you sell your primary residence, you can make up to $250,000 in profit if you're a single owner, twice that if you're married, and not owe any capital gains taxes. "Most people are not going to have a tax obligation unless their gain is huge," says Bob Trinz, a senior tax analyst at RIA, which provides tax information and software to tax professionals.Some sellers are surprised by this break, especially if they've been in their homes for a while.

That's because before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older had one other option. They could take a once-in-a-lifetime tax exemption of up to $125,000 in profits. And in all instances, there was tax paperwork (Form 2119) to fill out to show that you followed the rules.But when the Taxpayer Relief Act of 1997 became law, the home-sale tax burden eased for millions of residential taxpayers.

The rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts."There is some logic to this law change because most people under the prior rules didn't recognize a taxable gain because they rolled it over into another residence," says Trinz. "The change essentially makes it easier to dispose of your residence."Still some requirements to meetIf you used pre-1997 rules for residential sales, don't worry.

That doesn't disqualify you from claiming the exclusion on any residential sales now. The law change applies to all sales since it took effect.Another bonus of the new rules: You don't have to buy another home with your sale proceeds. You can use the money to travel to Europe in style, buy an RV and drive across the country or get all those designer shoes you never could afford before.

Even better, there's no limit on the number of times you can use the home-sale exemption. In most cases, you can make tax-free profits of $250,000 (or $500,000 depending on your filing status) every time you sell a home.Ah, but we are talking taxes here. You did notice that phrase "in most cases," didn't you? Before you put a "For Sale" sign in the yard, you need to make sure your house-sale situation is one of those "most cases."First, the property you're selling must be your principal residence. That means you live in it.

This tax break doesn't apply to a house or other property that you have solely for investment purposes. In those cases, the usual capital gains rules apply.You can, however, turn a rental house into your primary residence, making the sale of it eligible for the exclusion. This is accomplished when you meet the IRS use and ownership tests: You own and live in the home for two out of the five years before the sale.And your actual habitation of the home doesn't have to be sequential, notes Mark Luscombe, lawyer, accountant and principal tax analyst at CCH Inc., a Riverwoods, Ill.-based provider of tax law information and software.

The IRS lets you aggregate your time living in the house to meet the two-year residency requirement. "Generally, if you owned and used the home as your main home for periods totaling at least two years within five years ending on the date of the sale, you're eligible for the exclusion," says RIA's Trinz. "You look back at the last five years. Ownership and use may be at two different times.

This would apply if you owned a home for five years, but didn't use it as your primary residence for that full period. For the first three years, you rented it and then moved into it as your main home for the final two before you sold it."But you don't even have to live in the house at the date of sale.

The flexibility of the use test means you could live in your house for a year, rent it for two, move back in for another year and rent it again the year before you sell. Since during those five years you owned and lived in the property for two years, you meet the use and ownership tests.Finally, while technically there's no limit on the number of homes you can sell and reap tax-free gains, each sale must be at least two years apart.

That still leaves you room to make some money on several properties. You can sell your residence this year, pocket any gain within the tax limits and buy a new residence. Two years later, you can do the same thing, again and again, every two years.There even are situations where owners of multiple properties might be able to double up on the tax-free gain."There might be instances where you sell your primary residence and then establish your vacation home as your primary home for a couple of years and then sell that home," says Trinz.

"Empty nesters who have a large suburban home could move into a vacation home at the beach and then as they get older move to a residential facility so they can sell both the homes and not have any taxable gains."Be careful, however, if you move into a rental property you acquired through a like-kind exchange.

The American Jobs Creation Act that was signed into law in 2004 establishes a tougher test in these cases. If the property you convert to your principal residence is one that you earlier obtained via a property swap, in order to take advantage of the home-sale exclusion you must have acquired the property at least five years earlier.

Michael E. Kitces, director of financial planning for the Pinnacle Advisory Group in Columbia, Md., gives this example: A property is acquired by like-kind exchange in 2000, converted to personal use as a residence in 2003 and then sold in late 2005.

Since the like-kind property was owned for five years, it meets the new tax code ownership-length provision. And having met the new five-year acquisition rule for a swapped property, Kitces says, the owner qualifies for the capital-gains exclusion since he lived in the property for two years after its conversion.