Capital Gains on Real Estate?  Taxpayers who sell their principal residence can pocket - tax free - as much as $500,000 in profit if they file federal taxes jointly or $250,000 if they file singly.  The prloperty must have been owned and used as their principal residence for any two of the prior five years. Homeowners can shelter the profits on the sale of a home as often as once every two years. If the two-oyear use and ownership tests are not met but the home is sold because of special circumstances (ie. health, jobloss, etc.) the exclusion is prorated. Otherwise, gains above $500,000 or $250,000 are taxed at current capital gains rates, which vary depending on your tax bracket.