My earlier answer had broken links to the websites, I've reposted the answer with the updated links.
The current limits for non-taxable profits are $250,000 for single, $500,000 for married. Your cost basis in the home establishes the amount to subtract from your net proceeds to determine your profit. Your cost basis includes the original purchase price, all purchase costs you paid, nearly all improvements that fall under the classification as a capital improvement (that is, not normal expenses and minor wear and tear). Your net proceeds includes the sales price, less all sales transaction related expenses, like commission, paying the owner's title policy, marketing expenses you incurred, etc.
If you owned the home more than 1 year, then the tax, if any, should be a capital gains tax, rather than the tax on ordinary income. As of today, the capital gains tax is only 15% or 5%, depending on your circumstances.
Reading the IRS website is like reading Greek, here are a couple of good overviews on the subject, in plainer English:
It is taken out at closing and the title company will send it in. At the end of the year, give your HUD to your account and delete what was paid.
When I sold my home, I received a 1099 for the entire amount and was required to complete a Sale of Home form. By the time I subtracted the purchase price of the home, and allowable deductions (including real estate commissions) I was well below the $250,000 floor for profit.
If this is proceeds from a will or other source, please contact your CPA, tax professional, or attorney.
If there is more information you would like to include, simply respond to your own question rather than removing it. It makes it easier for the next person to give you more accurate information.
This link will give you all the information you need about tax on home sale proceeds: http://www.irs.gov/businesses/small/industries/article/0,,id=98921
Best of luck,
Keller Williams Realty