A growing number of Americans are hitting the road to dodge taxes, and the irs can't touch them. Why? Far from being on the lam, these tax-wise migrants are changing addresses to take advantage of generous tax laws that apply to the sale of a primary residence. Couples can exclude as much as $500,000 of gain ($250,000 for singles) when selling any house they've lived in for at least two of the previous five years. Thanks to a torrid real estate market, tens, maybe hundreds of thousands of upscale homeowners now sit atop such fat gains. If you're one of them, it's decision time. Moving is a hassle, but not moving could mean forfeiting six-figure tax savings on future appreciation.

This dilemma may not have occurred to you, and for good reason. Until 1997, there was a one-time lifetime exclusion for capital gains on housing. Financially speaking, moving didn't make as much sense. Now you can get an exclusion every two years. Swarms of homeowners with a collective $4.5 trillion in home equity in the U.S. are bumping up against the new limits. To extend the tax benefit, they must somehow reset the tax-exempt meter to zero, usually by selling their home and buying another one.

Frequent moving won't work for most people with young children or strong ties to a neighborhood. Still, some version of serial homesteading may make sense for you. Here's how it works:

Say a couple buy a house for $500,000 and sell it four years later for $1 million, then buy a house for $1 million and sell it four years later for $1.5 million. The couple would realize a profit of $1 million. But they would owe no tax because they were able to take the full exclusion on each sale. Had they bought for $500,000 and sold eight years later for $1.5 million, they would have the same $1 million profit but could have taken the exclusion just once and owed tax on half the gain. Their bill: $100,000 at the capital-gains rate of 20%.

"Most people don't view their residence as a capital asset, but that's exactly what it is," says Andrew Pincus, a tax lawyer at the accounting firm M.R. Weiser in Edison, N.J. He doesn't endorse frequent moves. But he advises anyone contemplating an addition to think about moving instead. One of his clients did just that and figures to save a bundle. The client paid about $400,000 for his first house, which roughly doubled in value. He wanted more space but liked his neighborhood and considered building a big addition. But he soon would have been amassing taxable gains in his home. Instead he sold for about $800,000. The gain was tax free, and he used it to build a bigger house on a lot next door. And now he will be able to accumulate an additional $500,000 in capital gains, tax free.

Some tax pros have been angling for ways to reset the meter without moving. Philip Holthouse, a partner at the Los Angeles tax firm Holthouse Carlin & Van Trigt, says you can do that by setting up a trust and selling the house to your adult children. Future gains will accrue to family members tax free, and it may help in estate planning too. He warns, though, that children without income cannot take advantage of the mortgage deduction, which may be worth more than any capital-gains tax saving. Another option is to sell your house and lease it back with an option to buy. A friend or relative might make such a deal with you. But the sale price and lease must be at market rates.

Finally, thanks to a special provision in the 1997 tax law, there is a one-time chance this year for you to make a "deemed sale" of your residence, allowing you to offset capital gains on your home with investment losses elsewhere—say, in your pathetic portfolio of tech stocks. The timing couldn't be better. A lot of folks in big houses have huge gains on their property and huge losses in their taxable-investment accounts. Ask your accountant for details, but here are the basics. Using the deemed sale, you don't have to move from your home, but you must pay tax on any capital gains that have built up. You may not avoid the tax by claiming the home-sale exclusion. To offset the tax owed, you will have to realize some capital losses by selling your loser stocks, notes Tom Ochsenschlager at accounting firm Grant Thornton. But if you've got such losses, the deemed sale can be a nifty way to reset the meter on tax-free appreciation of your home and clean up your stock portfolio all at once.

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