But that has changed with sales beginning on May 7, 1997. (Those who sold homes between May 7 and July 28, 1997, can choose which rules they prefer to use.) Under the new rules, the Internal Revenue Service predicts that there will be fewer than 10,000 taxable home sales a year, out of more than four million sales. No longer do people have to worry about the tax implications of deciding to rent, move to a smaller home or relocate to a less expensive part of the country.

To qualify for the exclusion, the home must have been the primary residence of at least one spouse, for two out of the previous five years. If you sell before two years, the exclusion would be prorated based on how long you lived in the home. A couple who lived in a home for six months, for instance, would get to exclude a maximum of $125,000. (After August 5, 1999, this exclusion will only be available in special situations like a change of employment.)

But not every homeowner is better off under the new law. Sellers with more than $500,000 in profit can no longer avoid taxes by trading up. If they move, they must pay the tax, albeit at a lower capital gains rate (20%) than the 28% that held under the previous law. There is also a provision in the 1997 law to lower capital gains on property held more than five years to 18%, but it doesn't take effect until in 2001. That means you can't even take advantage of it until 2006. Because that is such a long way off, "no one is doing any tax planning on this," says Linda Goold, tax counsel at the National Association of Realtors.

Another homeowner who is worse off under the new law is the one who has rolled over profits from many home purchases, giving him more than $500,000 in pent-up gains. Consider a couple who bought a starter home for $40,000 25 years ago and sold it for $150,000, or a profit of $110,000, 10 years later. Then they bought a new home for $200,000, rolling over that gain, so their cost basis on the new home was only $90,000. If they traded up a few more times, they could be in a home valued at $1 million, and only have a cost basis of $200,000. When they sold for $1 million, they would owe capital gains tax on $300,000 of profits (the $800,000 profit less the $500,000 exclusion). Under the latest law, no new home sellers will fall into this trap because no one will be rolling over gains from one home to the next.

Nor will most widows or widowers have to pay much capital gains tax on home profits. A provision in the tax code steps up the cost basis of the deceased spouse's half of the residence to the market value at the date of death. (If you live in a community property state, the surviving spouse gets to step up his or her half of the basis as well.) And the new law law also states that widows and widowers can exclude the full $500,000 (not the single person's $250,000) if they sell in the same year their spouse died.

There is only one way to reduce the tax you owe on a home sale, and it comes down to good record keeping. You should keep records of everything you spend preparing the house for sale. You can deduct all the cost of sales from profits. That includes a potential 6% commission to a real estate broker, appraisal fees, title searches, as well as any sprucing-up costs incurred within 90 days from the closing. And even now, you should keep track of capital improvements you make on your home. You may be in that home for years and some day earn a $500,000 gain. If the exclusion hasn't been raised, you'll want to elevate your tax basis as much as possible.

• Selling On Your Own: Price Your House Wisely
• Finding a Good Broker Takes Work
• Seller's Checklist