Just in time for homeowners to start pondering their 2002 tax returns, the IRS in December issued some long-promised clarification on who can exclude home-sale profits from taxation.

Most homeowners know that in 1997 tax laws were changed to allow home sellers to keep more of any profits they made on the sale. For married couples, up to $500,000 worth of gain from the sale of a house is excluded from taxation. For single sellers, the exclusion is for up to $250,000 in profit. There were no more rules about needing to buy another home or to be older than 55 to get the exclusion.

To qualify for the tax exclusion, sellers need to have owned their home for at least two years and have lived in it for at least two of the past five years, although the two years need not be consecutive.

Those who have to sell before owning the

home for two years can get an exclusion —

pro-rated for how long they’ve been in the home — but only if they have to sell because of a change in employment, a change in health or because of “unforeseen circumstances.”

For years, the exceptions to the two-year rule were that vague. But they’ve been clarified:

l “Change in employment” means your new job — or that of another “qualified person” in the household — is at least 50 miles farther from your old home than your old job was.

l “Change in health” means a doctor recommends a change in residence for health reasons, or that you need to care for a sick relative.

l “Unforeseen circumstances” include death, divorce or legal separation, becoming eligible for unemployment compensation, a change in employment that leaves you unable to pay your mortgage or living expenses, having twins or other multiple births, damage to the home resulting from disaster and condemnation or seizure of the property.

There are also a few basics to remember when preparing your tax returns.

As a homeowner, the amount you paid in real estate taxes during the year can be deducted from your income taxes. So can the interest you paid on your home mortgage.

If you bought a home last year and paid points when you got a mortgage, in most cases you can deduct the amount you paid in points.

If you refinanced your mortgage last year and you paid points when doing so, you can deduct the amount of the points. But the deduction must be spread out over the life of the loan. Finally, if you sold a home, you’ll need to subtract its “basis value” from the adjusted purchase price to calculate how much profit you made, if any, and whether you’ll be taxed on the gain.

The basis value of the home includes how much you paid for it, plus many of the costs associated with buying it — such as escrow fees — and the cost of any qualifying improvements you made.

An example: A married couple bought a house for $200,000. They made $100,000 worth of improvements, giving them a basis value of $300,000. They sell for $600,000, but their adjusted purchase price is $560,000, because they had $40,000 in seller-related expenses. They subtract the basis value of $300,000, and their profit is $260,000.

They don’t owe tax on the profit, because the first $500,000 of their gain is excluded from taxation.