The actual reduction in capital gains tax, from 28 to 20 percent, is fairly substantial. But it is the increase in the amount of gains that are exempt from taxes that clearly spells the advantage offered by the new law, which applies to sales after May 7, 1997. Married homeowners filing jointly can now exclude up to $500,000, and individual homeowners up to $250,000, in profit on the sale of a home that has been a primary residence for at least two of the five years preceding the sale.

Under the old law, a two-year tax deferral was allowed following the sale, after which the profits had to be reinvested in another property of equal or greater value in order to avoid capital gains taxation. So under the old law, the profits from the sale of a home were never fully realized in the long-term; they were simply shifted to another property.

There was also the once-in-a-lifetime deferral of $125,000 for those 55 years old and over. But often it barely made a dent in the appreciation of properties purchased many years before, particularly in those metropolitan areas where the market has been very strong. For example, New York City co-op shareholders who purchased their three- and four-bedroom apartments 20 years ago for $50,000 or less, often found their homes had appreciated to more than 20 times the initial sum.

A typical New York City scenario is the couple who purchased their three-bedroom West End Avenue co-op apartment in 1977 for $45,000. They raised a family in these spacious quarters, became active in the community, and enjoyed the neighborhood for 20 years. Now that the kids have grown and moved on, they have retired and are ready for a smaller, more convenient apartment. But in this boom market their home is worth $800,000, causing a tax liability that, under the old capital gains law, made selling the apartment prohibitive because the taxable income was too high. Even with the once-in-a-lifetime $125,000 deduction, they would have been responsible for paying the Federal government 28 percent of $630,000, equaling a tax of $176,400.

The available alternative under the old law was to transfer their six-figure profit into purchasing a new home. But like so many people who used their home equity to finance college tuitions, weddings, etc., they no longer have enough equity to pay the taxes, let alone purchase a $630,000 home for purposes of reinvestment. Even if they exercise another alternativepassing the estate to the childrenthis retired couple would not be able to realize the considerable profits generated from their prope ffb rty in their lifetime.

Under the new law, this couple can now deduct $500,000 from their $755,000 profit, and with the reduced tax rate of 20 percent, they are now responsible for paying $51,000 in capital gains tax; a tax savings of over $125,000! Selling becomes not only a viable alternative for those in pursuit of a more convenient lifestyle, it becomes advisable. They can now use their after-tax profit of over $700,000 to buy a two-bedroom condo in Florida for $200,000 and live on the remaining $500,000 comfortably for the rest of their lives.

There's a tremendous opportunity for owners of appreciated properties to take a tax-free profit, says Craig Schiller of Schiller & Associates, a Manhattan-based law firm. But he adds a cautious note by further advising, Those who wish to assure their gain should take advantage of the new laws now, since most tax benefits are temporary in nature and subject to change. In other words, M-get, while the going is good.'