A ruling by the IRS in late 2002 could put more dollars in homeowners' pockets when they must sell before they qualify for the full tax break. The Treasury has defined the unforeseen circumstances that often force homeowners to sell and under which they now can get some tax relief.

Unforeseen circumstances:

• Death. • Divorce or legal separation. • Job loss that qualifies for unemployment compensation. • Employment changes that make it difficult for the homeowner to meet mortgage and basic living expenses. • Multiple births from the same pregnancy.

A partial exclusion can be claimed if the sale was prompted by residential damage from a natural or man-made disaster or the property was "involuntarily converted," for example, taken by a local government under eminent domain law.

Second home sales also can provide some tax benefits, but not as much as they did in the past, thanks to a law that took effect in 2008. Previously, you could move into your vacation property, live in the home as your primary residence for two years and then sell and pocket up to $250,000 or $500,000 profit tax-free. Now, however, you'll owe tax on part of the sale money based on how long the house was used as a second residence.

What's not deductible
While many tax breaks are available to a homeowner, don't get too carried away. There are still a few things for which you have to bear the full cost.

One such expense is insurance. If you pay private mortgage insurance, or PMI, because you weren't able to come up with a large enough down payment, that's a cost you probably won't be able to deduct -- unless you meet the requirements of a special PMI law. The tax-law change, first passed in December 2006 and extended in December 2007, allows some homeowners to deduct PMI for loans that are originated or refinanced after Jan. 1, 2007, and through Dec. 31, 2010, and which meet certain loan amount limits.

The other big home-related insurance cost, property hazard insurance premiums, still remains nondeductible for all, even though the coverage generally is required as part of the home loan and is included as a portion of your monthly payment.

Other nondeductible residential expenses include homeowners association dues, any additional principal payments you make, depreciation of your home, and general closing costs and local assessments to increase the value of your neighborhood, such as construction of new sidewalks or utility connections.

What about all those repairs that seem to crop up the day after you move in? Surely they're tax-deductible. Sorry. While they'll make your house much more comfortable, you're on your own here, too.

But hold onto the receipts. Some long-time homeowners may find their property has appreciated beyond the $250,000 ($500,000 for married couples) amount the IRS will let you keep tax free when you sell. If that happens, the records of property improvements could help you establish a higher basis for your house and reduce your taxable profit.

Freelance writer Kay Bell writes Bankrate's tax stories from her Austin, Texas, home. She also writes two tax blogs, Eye on the IRS for Bankrate and Don't Mess With Taxes, and is the author of the book "The Truth About Paying Fewer Taxes."