dubya, you forgot to mention that the taxes on the excess profit (over $250,000 single/$500,000) married is taxed at the long term capital gains rate. That is 15%. Much cheaper than taxes on income for most of us.
And we can sell one house at that profit, and buy another and get the same profit again after as little as 3 years. Although anyone who is counting on getting that kind of profit in 3 years is probably delusional.
What's that rule about selling when you are 59+ and capital gains? Been a while since my CPA mentioned it.