I am a Los Angeles Realtor and not a CPA.  Please don't ever rely on me or any Realtor to provide you with tax advice.

Until the end of this year, when a homeowner sells their primary residence they can exclude up to $250,000 (or up to $500,000 for married couples filing jointly) in capital gains from their taxes. (translation: depending on your filing status you can earn a tax free profit from your home's appreciation of between $250,000 - $500,000).  To qualify the homeowner must have lived in the home two out of the last five years. 

Prior to 1997, a homeowner had to roll the profits into another home.

Effective January 1, 2009 The Housing Assistance Tax Act of 2008 modifies this. The amount of profits from the sale of a house that can be excluded will be based on the percentage of time that the home was occupied by the owner as their primary residence. If the home has been used as a rental, the exemption will be reduced by a percentage based on how long it was a rental.  Call your CPA, not your Realtor.

More valuable tax information regarding selling your home.