Everything you own and use for personal purposes, pleasure or investment, is a capital asset. Your primary residence and investment property is no exception. When you sell these assets there are taxes to be paid and for longtime homeowners this is a major reason why Seniors don't move. As a basic calculation, a capital gain or loss is the difference between the selling price and the basis (the price you initially paid for the property or the adjusted value as of the date a spouse passed away -- the reason an appraisal is needed). A Seller then deducts closing costs of the sale (i.e. Brokerage commission and escrow fees) and major home repair expenses from saved receipts. Also excluded from capital gains is a $250,000 tax-free deduction as a single homeowner or as a married couple filing separately, or $500,000 if filing jointly. The capital gains tax is then computed on the net proceeds after all deductions are taken. Note: a loss may be deducted only on an investment property, not on personal property.

Eligibility for claiming the $250,000 per person tax deduction requires the owner to have lived in the property as a primary residence for at least two of the last five years prior to selling or exchanging. Therefore, if you have been renting your home for three or more years, you will need to move back to qualify. The capital gains tax deduction is allowed each time you sell or exchange your principal residence, as often as every two years. And, you are not required to reinvest your proceeds. However, there are rules that apply to a 1031-exchange if a property owner wants to defer paying taxes when selling and to buy a like-for-like investment property.

The tax rate on capital gains is determined in part on the property owner's taxable income rate, and is a question for your CPA.