Tax Strategies for Homeowners

So now what? Well, using that example, the person gets the $250,000 freebie. He will then owe tax on the extra $50,000, and report it on Schedule D -- Capital Gains and Losses, just like a stock sale.

Big note: If you sold your place at a loss (and I'm sorry if you did), you can't claim a loss on your tax return for a house. Uncle Sam doesn't really care that the housing market took a turn for the worse in 2006.

Same goes for the sale of your vacation home. Sell it at a loss, and it's your problem. But if you sell it at a gain, Uncle Sam does the happy dance, because the gain from the sale of a second home does not qualify for the home-sale exclusion. You'll owe tax on the whole amount. So report it on Schedule D and pay the piper.

Here's a planning tip: If you still own a vacation home and are contemplating retirement soon, consider selling your principal residence and let the gain qualify for the exclusion. Then move into your vacation home. As long as you live there for at least two years, it will then become your principal residence, and that gain will qualify for the exclusion when you sell.

Now, if you sold your home or condo in the first few years after purchasing it, many mortgage companies charge an early prepayment penalty -- which is a joke, by the way. If you were forced to pay this ridiculous fee, be sure to mark it as a deductible on Schedule A -- Itemized Deductions.