The purchase - The IRS says you can deduct interestin the year that it is paid, and that is usually part of each monthly loanpayment.

Mortgage interest - In general, you can deduct interest charged on aloan used to acquire or improve your principal residence in the year that it ispaid.

The sale - Because your home is considered a capitol gain, there isno tax on the sale of your home... (up to $500k for married, $250k for single)

If you have a gain from the sale or exchange of your main home in 2003, youmay be able to exclude from income up to $250,000 of the gain ($500,000, forcertain married taxpayers filing a joint return). The exclusion may be allowedeach time you sell or exchange your main home, but generally no more frequentlythan once every two years. You cannot deduct a loss from the sale of your mainhome.

If you sold your home under a contract that provides for part or all of theselling price to be paid in a later year, you made an installmentsale. Refer to Topic 705 for more information.

To be eligible for an exclusion, your home must have been owned by you andused as your main home for a period of at least two years out of the five yearsprior to its sale or exchange. You can meet the ownership and the use testsduring different two year periods. However, both tests must be met during thefiveyear period ending on the date of the sale or exchange. If you and yourspouse file a joint return for the year of the sale or exchange, you canexclude up to $250,000 of gain if only one of you qualified for the exclusion.

If you did not meet the ownership and use tests or if during the 2yearperiod ending on the date of the sale or exchange you sold or exchanged anotherhome at a gain and excluded all or part of that gain, you may be allowed toexclude a portion of the gain realized on the sale or exchange of your home if

You sold or exchanged your home due to a change in health, or place of employment,or due to unforeseen circumstances