An individual can exclude up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale. The two years of residency do not have to be continuous. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. There are allowances and exceptions for military service, disability, partial residence and other reasons. See IRS Publication 523. If an individual or corporation realizes both capital gains and capital losses in the same year, the losses cancel out the gains in the calculation of taxable gains. For this reason, toward the end of each calendar year, there is a tendency for many investors to sell their investments that have lost value. For individuals, if losses exceed gains in a year, the losses can be claimed as a tax deduction against ordinary income, up to $3,000 per year. Any additional net capital loss can be "carried over" into the next year and again "netted out" against gains for that year. Corporations are permitted to "carry back" capital losses to off-set capital gains from prior years, thus earning a kind of retroactive refund of capital gains taxes. The IRS allows for individuals to defer capital gains taxes with tax planning strategies such as the charitable trust (CRT), installment sale, private annuity trust, and a 1031 exchange.

Thanks, but I don't know why the answer is talking about "capital gains on the sale of real property if the owner used it as primary residence" when I specifically stated it is a vacant lot I am selling. May I just don't get it.

I think your question is how long do you have until you need to actually pay the taxes correct? If so, you will pay them on your tax return for the year of the sale. If you sell the property in 2007, you will pay the capital gains tax in your 2007 taxes. Of course, you can defer the capital gains tax using methods like the 1031 and the new Ensured Installment Sale. Ensured Installment Sale helps you defer the capital gains free and collect the payments over the period of years you choose. Then, you only pay the capital gains in the year you actually receive payments.