Taxable gain:
Sales Price:         $600,000 
Adjusted Basis  - $100,000 
Taxable gain     = $500,000

Of that gain, $450,000 is tax-free under the new law; the $50,000 taken as depreciation deductions is subject to 25% capital gains tax.

Splitting Up Big Gains

If you expect huge gains from selling a house -- more than can be excluded from tax under the new rule -- you should consider ways to divide ownership of the house.

For example, say a couple owns their residence together with their adult son (perhaps because they have given him a share). If he meets the ownership and use tests as to one-third of the property, the son may sell his share for a $250,000 gain without incurring a tax. His parents could simultaneously sell their share for $500,000 without tax, sheltering the entire $750,000 gain.

San Francisco tax attorney and columnist Bob Sommers, also known as the Tax Prophet, provides tax information with a flair at http://www.taxprophet.com.