WASHINGTON -- Jan. 29, 2001 -- The year 2000 marked the second-highest year on record for sales of existing homes nationwide, with a pace of 5.03 million units sold, down 3.2 percent from the 5.20-million record in 1999, according to the National Association of Realtors (NAR). NAR's home sales forecast has been revised, says NAR President Richard A. Mendenhall. "With continuing declines in mortgage interest rates, existing home sales could rise 2.1 percent this year to a total of 5.14 million -- if we can avoid a recession," he says. "We expect the 30-year fixed mortgage interest rate to average around 6.75 percent in 2001, and that certainly will help the market in the short run." For all of 2000, the national median sales price was $139,100, up 4.4 percent from $133,300 in 1999. The median is the midpoint -- half the homes sell for less, while half sell for more. "This year, we're forecasting the median existing home price to rise 5.2 percent to $146,300," says Dr. David Lereah, NAR's chief economist. Nationwide, housing inventory levels rose 1.9 percent at the end of December with 1.60 million existing homes available for sale, which represents a 3.9-month supply at the current sales pace. Inventory levels are 6.7 percent above the 1.50 million homes available in December 1999. "Although inventory is up slightly, we're still below normal levels," Lereah says.

How to avoid tax on a profitable home sale Although the basic principal residence sale tax exemptions were overhauled in the Taxpayer Relief Act of 1997, many home sellers are unaware how to avoid tax when selling their homes and vacation properties. Some home owners still think they can avoid capital gain tax by selling their principal residence and buying a replacement of equal or greater cost. That's wrong. Other home owners still think they must be 55 to claim a once-in-a-lifetime $125,000 home sale tax exemption. That's also wrong. The old ''rollover residence replacement rule'' and the old ''over-55 $125,000 tax exemption'' were eliminated in 1997 and replaced with a simpler, more generous rule with no age requirements. However, the 1997 law has new ''aggregate'' occupancy and ownership tests. But a loss on the sale of your personal residence is not tax-deductible from other income. The simple $250,000/$500,000 home sale tax exemption. Most home sellers have heard about the tax exemption up to $250,000 per qualified seller (up to $500,000 for a married couple filing jointly). For a married couple, only one spouse needs to hold the title, but both spouses must meet the two-year occupancy test to claim up to $500,000 in tax-free sale profit. To qualify, the seller must have owned and occupied the primary residence an ''aggregate'' two years during the five years before sale. This means, for example, the home can be rented to tenants for the three years before its sale if the seller occupied it for the previous two years. Become a ''serial home seller.'' Since there is no limit to the number of uses of the exemption (Internal Revenue Code 121), home owners can buy a fixer-upper house, live in it at least two years while raising its market value by making profitable improvements, then sell it for up to $250,000 in tax-free profits for each qualified seller. Home sellers can use this tax exemption again and again, without limit. But it cannot be used more frequently than once every 24 months. Home owners who use this tax law repeatedly are known as serial home sellers. If a home sale becomes necessary after less than 24 months of ownership and occupancy, a partial exemption is available. But the sale must be due to health reasons, change of job location that qualifies for the moving expense deduction (the new job site must be at least 50 miles further from the old home than was the old job site), or other ''unforeseen circumstances'' defined by the IRS. When a qualifying partial home sale exemption is claimed, only a percentage of the exemption is available. To illustrate, if you sell your principal residence due to a qualifying reason after only 12 months of ownership and occupancy, you can claim up to 50 percent of the home sale exemption. Primary residence occupancy need not be continuous. The two-year test does not require continuous occupancy of your principal residence. For example, suppose George and Barbara live in their Houston home from November through April (six months) each year. They live in their Maine home from May through October (six months) each year. While living full-time in each residence, it can qualify as their ''main home.'' If George and Barbara decide to sell either home, it can qualify for up to $250,000 per qualified seller tax-free profits because they occupied it well over an ''aggregate'' 24 months during the five years before sale. Special rule for divorced or separated spouses. Married and divorced couples should be aware that Internal Revenue Code 1041 says no gain or loss is recognized on inter-spousal title transfers during marriage or as part of a divorce. But many divorce and separation decrees specify one spouse shall continue to occupy the co-owned residence, such as until the youngest child becomes 18, when the residence shall be sold and the proceeds divided equally. Before 1997, the tax result was often unfair t