One of the biggest benefits of homeownership is the remarkable tax advantage when you sell. That's why I was surprised recently when I received a call from a friend in the real estate business asking me to review the two-year "rollover rules" that apply to residences.

I reminded my friend that the laws changed in 1997 and that the Taxpayer Relief Act replaced the old rules. My agent friend then remembered the details of IRS Code Section 121 and apologized for sounding so ignorant. But she went on to say that the old rules had been so completely familiar to her that it was easy to get confused.

It struck me that she is right. Our tax code is so complex that it is nearly impossible to keep up. So as a refresher, let's cover the rules that apply when you sell your residence.

In a nutshell, if you own and occupy your principal residence for any two of the five years before selling it, you may exclude from taxation all profits up to $250,000 per owner who lives there. That's a quarter of a million dollars for a single owner -- and double that for a couple.

Here are some of the details:

• The correct name for this tax break is Exclusion of Gain on the Sale of Principal Residence. It is often called simply Section 121.

• You can have only one principal residence at a time, and it is typically the place where you most often spend the night.

• The two years of occupancy and ownership need not be consecutive. Thus any combination of nights totaling a two-year period would let a residence qualify. The soonest you can take the full exclusion is two years after purchase. Likewise, you could live in your home a year, rent it out for three years, then move back in for a year and qualify.

• If you fail to meet the two-year test, you can take a prorated portion of the exclusion based on the length of time you did own and occupy as a percentage of the required two years, but only if you sold due to a change in your place of employment by at least 50 miles, a change in your health, or another "unforeseen circumstance." For example, taxpayers affected by the Sept. 11, 2001, terrorist attacks are eligible to exclude part or all gain from the sale of their principal residence even if they don't meet all conditions to qualify for the full exclusion. The IRS typically considers such circumstances on a case-by-case basis.

• Unlike the pre-1997 rules, this is not a "once in a lifetime" benefit. You can take this exclusion once every two years. So a smart couple could buy an ugly duckling house in a nice neighborhood and move in, perform all the fix-ups, sell the improved house on the second anniversary of its purchase, and move into their next fixer-upper, all without paying any tax, up to a limit of $500,000 in gain.

• Also unlike the pre-1997 rules, this benefit is not limited to sellers 55 or older. It is available to all taxpayers who qualify.

• The pre-1997 rules were simply a deferral of gain. To qualify for the deferral into the next residence, you had to buy a replacement residence of equal or greater value within two years of selling your last residence.

The new exclusion is better than a deferral -- it is really an exclusion. You never have to pay tax on the amount you can exclude. And even though the law may change in the future, it seems unlikely that Congress will reduce the benefit. It is one of the most popular provisions of the tax code.

In 1997, some economists suggested the change in the tax law might be so appealing that millions of Americans would begin moving every two years to take advantage of it. That has not happened.

The rules in Section 121 are designed to reward homeowners and encourage ownership among low- and and middle-income taxpayers. The truly rich were hit hard by the change.

Consider a Donald Trump scenario: He buys Mar-a-Lago Estate in Florida for $30 million, lives there a few years, then sells for $35 million. Under the old rules, he could defer all the gain into his next residence if he paid more for the replacement.

Now he can exclude only a quarter of a million, and he's hit with a huge tax bill on the remaining profit.

 John Adams is a broker and investor. His Web site is www.money99.com.