Tom Herman points out the importance of understanding current real estate tax law in his recent Wall Street Journal article. That along with this decade's real estate boom comes a big tax liability.

"A growing number of homeowners, riding the crest of the real-estate boom, are getting hit by an unpleasant surprise when they sell: a hefty tax bill."

"As home prices have surged, more people have been selling their home for bigger gains than the exclusion amount -- and thus are facing unexpectedly big tax bills."

"Many people who thought they wouldn't owe taxes when they sell are now on the hook. Among those most likely to be affected are homeowners who bought many years ago and who live in hot real-estate markets such as California, New York, Hawaii, Florida and Washington, D.C."

"Many sellers are startled to hear they owe any tax at all because they didn't realize the 1997 law erased a popular provision that had allowed them to avoid taxes. That provision generally allowed sellers to defer or eliminate capital-gains taxes by rolling over their proceeds within a specified time period into a new home costing as much or more than the old one. The law also deleted another provision that generally offered a once-in-a-lifetime $125,000 exclusion for people age 55 or older."