Dear Liz: My wife wants to sell our home of three years for a $300,000 profit after an extensive remodel and move into our rental home. She wants to stay there for two years and then sell to take advantage of the capital gains exemption. If we do it her way, we lower our monthly mortgage payment but lose the yearly rental income of $30,000. Our income is around $130,000. Any input?

Answer: Each homeowner can exclude up to $250,000 of home sale profits from capital gains taxes if they have owned and lived in a property as their primary residence for at least two of the previous five years. Married couples can exclude up to $500,000. This tax break can be used repeatedly.

The federal capital gains tax rate is currently 15% for most people, so the full $500,000 exemption could save a seller $75,000 in federal capital gains taxes. If your state or city has an income tax, you could save there as well. California, for example, doesn’t have a capital gains tax rate, so home sale profits would be subject to ordinary income tax rates of up to 13.3%.

The math is a little different when you move into a property you’ve previously rented out, said Mark Luscombe, principal analyst for Wolters Kluwer. Over the years, you’ve taken tax deductions for depreciation of your property. When you sell, the Internal Revenue Service wants some of that benefit back, something known as depreciation recapture.

When you sell a former rental property, some of the gain will be taxed as income, even if you’ve converted the home to personal use, Luscombe said. The maximum depreciation recapture rate is 25%.

A tax pro can help you figure out the likely tax bill. Any tax savings would be offset by the net result of a move, such as the lost rental income (minus the lower mortgage payments) and the substantial costs of selling, including real estate commissions and moving expenses.

It’s not clear if you’ve already remodeled your current home. If you haven’t, please think twice about an extensive remodel if you plan to sell, because you probably won’t get back the money you spend. Home improvement projects rarely return 100% of their cost. You’ll typically get a better return by decluttering, deep cleaning, sprucing up the yard or putting on a new coat of paint.

Dear Liz: My friend has been diagnosed with Alzheimer’s and is now living in a secure assisted living facility. After a year in this home, his sister finally sold his condo. Her tax person says he will take a big tax hit. I say it is totally medically ordered and he’ll need the money for his current housing ($5,000 a month) until he dies. I also question whether part of that $5,000 should be deductible because it is only ordered because of his illness. Your thoughts?

Answer: Your friend may not be able to protect all of his home sale proceeds from taxation, but he likely will be able to protect some.

If your friend lived in his condo for at least two of the previous five years before the sale, he will be able to avoid tax on up to $250,000 of home sale profits. Even if he fell short of the two-year mark, he likely would benefit from IRS rules that allow partial exemptions when the sale is due to “unforeseen circumstances.”

Meanwhile, medical expenses, including some long-term care expenses, are potentially deductible if they exceed 7.5% of someone’s adjusted gross income. Assisted living expenses may qualify as deductible medical expenses if the resident is considered chronically ill, which means they cannot perform at least two activities of daily living (eating, toileting, bathing, dressing, getting in and out of bed and remaining continent) or they require supervision because of cognitive impairment, such as Alzheimer’s disease or other forms of dementia. The personal care services must be provided according to a plan of care prescribed by a licensed healthcare provider. Typically, assisted living facilities prepare such care plans for their residents.

Dear Liz: My husband recently took a dream job in a different state. We are renting a place there, and it is his primary residence. We own our home in the “original” state, where I live and work. We intend to keep our home for another three to four years. How will this impact our taxes? We are married, filing jointly and our income is straightforward W-2. Will we need to file as residents in both states? I know most states will credit taxes already paid on income earned in another state, but which is our “primary” residence? I may base permanently in the new state because I can work remotely. I am confused about filing jointly when each spouse lives in a different state.

Answer: Please talk to an accountant about the best way to handle your returns. In some cases, spouses who live in different states can submit their federal tax returns as “married filing jointly” while filing their respective state returns as “married filing separately.” Other times, there may be tax advantages to filing jointly in one state, or the nonresident spouse will be required to file.

If you are required to submit a return to the nonresident state, your accountant can tell you whether you qualify for credits. Alternatively, there may be a reciprocal tax agreement between states that allows nonresidents to avoid taxes if they follow certain rules.

But you’ll want to be particularly careful if you currently live in a high-tax state with a reputation for aggressive residency audits such as California, New York and Illinois.

A state auditor may decide that your husband’s move is temporary and his income is thus subject to your state’s taxes. It would be up to him to prove otherwise, and that may not be as easy as changing his voter registration. A tax pro can help guide him, and later you, on the best way to establish residency.

Dear Liz: Our family owns a vacation home. A caretaker for the property lives in a smaller house next door that is also owned by our family. We consider her part of our extended family and would like to show our appreciation when the property is sold. Our wish would be to give the smaller house in which she lives to her as a gift, but we know the annual payment of property taxes would probably be too great a financial burden for her to live there as a retiree. (She is currently in her 50s.) Is there some sort of trust or fund we could set up that would cover her property taxes until her death without adding to her taxable income?

Answer: Yes, but there may be a better solution.

A trust can be set up to pay the property taxes or other property expenses during the caretaker’s lifetime, said Jennifer Sawday, an estate planning attorney in Long Beach. Trusts face high tax rates, however, and cost money to set up and administer. Plus, you have to find people willing to be trustees and backup trustees who are likely to outlive the caretaker. You also must decide what happens to the money when the caretaker passes away.

All these issues are surmountable, of course. Younger members of your family could be trustees, for example, or you could hire professional trustees. The money could be invested conservatively, or in tax-efficient mutual funds, to minimize taxes. Or it could be invested aggressively enough to pay the tax bill and still provide enough income to pay the property expenses.

Another, simpler solution would be to give her the cash outright. Gifts are not taxable to the receiver, so the gift itself would not increase her income taxes. She would have the burden of managing the cash, of course. Like the trust, she could invest to minimize taxes or more aggressively to potentially grow the money and offset inflation. Either way, her tax rates probably would be lower than the trust’s.

An estate planning attorney can help your family discuss the various options and set up the documents to carry out your wishes.