I learned that the gains you make by selling your home in the US,
which you live in for total of two years in the last five years you
owned it, is tax-free upto $250,000 ($500,000 for married filling
jointly).

  For example, I bought HOUSE-A in 1999 and bought another house
HOUSE-B in 2000, lived in HOUSE-A until 2001, then moved to live in
HOUSE-B until present. Then, sell HOUSE-A for a profit in 2004, then
sell HOUSE-B for a profit in 2005.  Are the gains in both houses
tax-free?? If only HOUSE-A's gain is tax-free, then when can I sell
HOUSE-B to merit a tax-free gain??

Dear Marvs

You have to live in house A for two years to treat it 
as your personal residence. i.e. If you bought it on
June 1, 1999, you must live in it until June 2, 2001.
http://www.irs.gov/newsroom/article/0,,id=105042,00.html

If you rented out House A while you weren't living there,
you will have to pay tax on the depreciation you took
when you sell the house. 

Now, you moved to house B, let's say, on June 2, 2001.
If you are still living there now, you've fulfilled the
2 years. However, you may only sell ONE house in any 
year to take advantage of the exclusion. 

So, you'll need to wait until 2005 to sell house B. 

If you have a large gain coming up on house B, and want to 
be really safe about the exclusion, sell house A and 
close escrow on it in 2004. And wait until 2006 to close
escrow on house B.

However, a group of tax professionals have been discussing this
at a breakfast meeting recently and someone looked up the law.

The determination was that even if both houses qualify for the
exclusion, you may only use the exclusion once in any year. 
But you may use it two years in a row. 

Best wishes,

Your TaxMama-ga

Thanks Tax-mama.  Great answer! It's great doing business with you. :))

Thanks Jack-oft.  Great inputs!

"The 1997 Taxpayer Relief Act contained a big break for homeowners. If
you sell your home, you may exclude up to $250,000 of your capital
gain from tax. For married couples filing jointly, the exclusion is
$500,000.

The law applies to sales after May 6, 1997. To claim the whole
exclusion, you must have owned and lived in your residence an
aggregate of at least two of five years before the sale (this rule is
called the "ownership" and "use" test). You can claim the exclusion
once every two years."

--http://www.nolo.com/lawcenter/ency/article.cfm/objectID/822A5B90-F9E8-4BA5-BA8518731B79F920

You can use this and potentially (after the origional 5 years) sell a
house ever 2 years at a profit.  However, don't forget about the
realator commission, the cost of financing, titling fees, termite
inspection, property tax, so on and so forth if you're considering
trying to make a living this way.  It is doable, but there are many
expenses that most people don't consider when calcuating their profit
from home sales.
Also, this is only a federal law.  State taxes may still apply.