Effective as of 2009 Congress has altered the taxes on the profit of second homes... vacation homes and rental properties.  Now under the current law, you could sell your primary residence and take up to $250,000 of profit and double that for a joint return ($500,000).  Meaning tax-free as long as you owned and consistantly reside their for two of the five years leading up to the sale.  After that you may move into your vacation home / rental property and by living in it for at least two years a tax free incentive may be in order with a possibility of profit that was built up while it was a vacation home or rental could be exempted by the IRS.

     So you're thinking of leaving your home then what do you do with your current home? You could rent it to generate cash flow and buy some time before selling it in this slow housing market. The tightening doesn't apply in reverse so you could still qualify for tax free profit on the home as long as you sell it within three years to meet the two of five-years test.  Again, see a CPA for more on this...

     The aid to help pay for the big housing bill that was passed this summer had been brought to an end and Congress has changed the rules so that some of your gain will be taxable.  That is if you converted your vacation home / rental unit to a primary residence after 2008.  Part of the gains is to be taxed based on the ratio of nonqualified use.  It's calculated by the time the property is used as a vacation home / rental unit after this year to the total amount of time you owned the property.

For example you purchased your second home in 2000 and then you moved into it as your primary residence in 2011 and sell it two years later.  Now the home would be used as a vacation property for two years after 2008.  So then 1/17th of the profit, two out of the 14 years you owned it, would be taxed at capital gains rates. The remainder of the gain, up to $500,000 for couples, would be considered tax free.

     These tax law changes could be even more significant if you buy a second home after 2008.  But no matter what you choose to do you must speak with a knowledgable real estate CPA to find out the best course of action for your situation.