We just sold our house. When do we have to pay the IRS?

Q: If we sell our house and make money, how long do we have before we need to buy our next house or pay capital gains tax?

A: Capital gains taxes as they apply to your principal residence can be found in IRS Publication 523.

If you have lived in your home for two of the five years leading up to the date of sale, you are exempt from taxes on capital gains realized by the sale of the home. There are limits, though, of $250,000 in gains for a single filer and $500,000 for a joint return.

Don't confuse the selling price of the home with the amount of your capital gain. If you bought your home for $350,000 five years ago, then you sold it for $450,000 this year, you have $100,000 in capital gains on the sale of the home. The $350,000 was your cost "basis" -- essentially, what it cost for you to acquire the asset -- and only the amount above your basis is considered capital gain. In this example, it is $100,000, and this figure that can be lowered (that is, your basis cost increased) if you made value-lifting improvements, updates or expansions over that time.

You can only exclude gains from the sale of a home every two years -- that is, if you sold a home last year and excluded the gains from tax, you cannot exclude the gains made on this house. You would have to wait at least another year before this home becomes eligible to be excluded.

Publication 523 has worksheets and tips to help you figure out your basis cost and what your gains actually will amount to once you've subtracted selling costs, certain improvements and more.