With the arrival of their third child, Nathan and Mary need a larger home. Wisely thinking ahead, they sat down with their CPA to check the tax consequences of selling.

She agreed that taxes should play, if not a starring role, a strong supporting one in their home-sale strategy. It's important to know the rules going in.

Like most people, Nathan and Mary hoped to sell their home at a gain. If successful, the couple should be able to exclude part or all the profit from their income because the residence had been their main home for at least two out of the five years preceding the sale date.

Generally, an individual filer can exclude up to $250,000 of the gain from his or her income, while joint filers like Nathan and Mary can exclude $500,000. Their adviser noted that this excluded gain is not subject to something new on the tax landscape -- the net investment income tax, which came about under the Affordable Care Act and took effect on Jan. 1, 2013.

If the couple could exclude all the gain, they probably wouldn't need to report the home sale on their 2014 tax return. If they couldn't exclude the total gain, or chose not to, they'd need to report it.

Look out for losses

"But what if we lose money?" Nathan asked. In that case, their advisor warned, the federal tax code does not allow a deduction for a sale of one's primary residence that results in a loss. So the couple needed to consider whether, if they couldn't at least break even on the sale, they'd be prepared to stay in their smaller home until the local market picked up or take the loss to get themselves into larger house sooner.

Taking a loss is never a desirable outcome. But, their advisor pointed out, if they wait until their current home rises in value, it's likely their target homes will also be more expensive. Will the prospective gain make up the difference? Possibly not and, meanwhile, their quality of life might suffer.

This has been a general discussion and is not intended as advice to anyone. Always discuss your particular situation with a qualified advisor.

Norman Grill is a certified public accountant and managing partner of Grill & Partners LLC, accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien. His " Money Matters" column appears monthly. He can be reached at n.grill@GRILL1.com