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(This is Part 4 of a five-part series. See Part 1, Part 2, Part 3 and Part 5.) There are two basic methods to consider when trying to avoid paying capital gains tax on the sale of your home. METHOD #2 -- THE $250,000 AND $500,000 PRINCIPAL RESIDENCE SALE TAX EXEMPTIONS. Most homeowners are aware of the very generous tax exemptions of Internal Revenue Code 121, enacted by Congress in 1997 to repeal the old (a) $125,000 tax exemption for senior citizen home sellers over 55, and (b) the "rollover residence replacement rule" which required buying a replacement principal residence of equal or greater cost to qualify for tax deferral. Those old tax breaks were repealed! Instead, IRC 121 now entitles principal residence sellers to a $250,000 tax exemption (up to $500,000 for a qual...