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by CareyBot

DEAR BOB: My wife and I are both 85. We bought our house five years ago in an Internal Revenue Code 1031 tax-deferred exchange. It was our third 1031 exchange in a series so our cost basis is very low. We rented out the house for about three years and took it over as our home two years ago. Our plan was to sell it eventually and claim the $500,000 exemption to offset the capital gains tax we will owe on the 1031 deferred gains. However, I read in IRS Publication 17, "You cannot claim the exclusion if you acquired your home in a like-kind exchange." Is there any legal way to get around this? --Don DeL. DEAR DON: Yes. As you probably know, Internal Revenue Code 121 allows principal-residence sellers to qualify for up to $250,000 tax-free capital gains (up to $500,000 for a qualifi...