Section 121 of the IRS tax documents allows you to exclude the gains you make on the sale of your principal residence if you meet the following criteria.
You must own and occupy the residence for 2 of the last 5 years.
This is available only once every 2 years.
You can exclude up to $250,000 in gains per owner-occupant.
For complete details click on the following link http://www.irs.gov/irb/2004-39_IRB/ar07.html
If your spouse will allow it, I would recommend purchasing a fixer upper in a nice neighborhood. Make sure the home you purchase is in a good school district and a low crime area. You can fix up the property during the 2 years that you live in it and then not pay taxes on the gains up to $250,000 per owner-occupant when you sell it.
Unfortunately, I cannot take my own advice. My wife will not allow it.
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