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Take your home equity and run

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Gina Grzelka and her husband sold a two-bedroom 1,350 square-foot house in the suburbs of Chicago and now live in a four-bedroom 3,000 square-foot house in Baldwinsville, N.Y. The price of their spacious new home was half the selling price of their Chicago area home.

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In Sanford, Fla., Jan Zeiger and her husband are in the process of selling their home for $260,000. They plan to move to Columbia, S.C., where they hope to find a bigger, newer home for less than $175,000.

Laura Markel sold her 700 square-foot condo in San Clemente, Calif., for $300,000 after paying only $105,000 for it four years earlier. With $180,000 of her equity, she purchased a 1,700 square-foot, three-bedroom house in Prescott Valley, Ariz. She now has a private backyard, which she did not have in San Clemente.

What's in it for the IRS? Not much! Only a small percentage of the population is taxed on the profits from the sale of a house that they had occupied, thanks to generous provisions that allow single homeowners to exclude up to $250,000 of capital gains on the sale of a home ($500,000 for married couples filing jointly). The tax law, which went into effect in 1997, applies to sellers who live in a home as a principal residence for two of the five years prior to its sale.

Salaries vs. cost of living expenses
It's true that salaries are usually higher than the national average in demographic areas with high living expenses. For example, the latest income report published by the U.S. Census Bureau states that the median income in Colorado was $51,518 in 2004-2005. In Denver, the median sales price of an existing single family home averaged $253,200. However, in Arkansas, the median salary was only $36,406 and a house in Little Rock averaged $128,900.

The ratio between housing and the cost of living is not consistent everywhere. "Before assuming that the cost of living and salary differentials have a parallel relationship, spend a little time doing some research," says Barry L. Brown, president of Effective Resources in Holiday, Fla. For instance, he notes, salaries run about the same in Tampa, Fla., as in Nashville, Tenn. "However, the cost of living in Nashville for the same salary level is 92.8 percent that of Tampa, Fla.," he says.

Supply and demand may be what drives salaries, but not necessarily the cost of living. Check out Bankrate's cost of living calculator to compare the costs of various professional services and products in your home town versus those in other cities.

Improve your portfolio, your lifestyle -- or both
Housing costs are the biggest expense for most families in the U.S. "For people who are not ultrawealthy, it's their biggest investment and piece of debt," says CPA Randy Harrison, a partner at Meyers, Harrison & Pia in New Haven, Conn. "By relocating into a lower-cost market, they are able to reduce the carrying cost of that debt, such as the interest expense on the mortgage."

 
 
Next: "To successfully pay off debt ... you have to give up a luxury."
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$50K HELOC 4.06%
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