Can trading up to new home offer tax savings?

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Editor's note: Robert Bruss is temporarily away. The following column from Bruss' "Best of" collection first appeared Sunday, March 12, 2006. DEAR BOB: Can I sell my house, plus my rental house, and buy one house for my children and me to live in a better neighborhood without having to pay capital gain tax? --Amelia A. DEAR AMELIA: Thanks to Internal Revenue Code 121, if you have owned and occupied your principal residence at least 24 of the 60 months before its sale, you can sell it and claim up to $250,000 tax-free capital gains (up to $500,000 if your spouse also meets the 24-month occupancy test and you file a joint tax return in the year of home sale). Purchase Bob Bruss reports online. However, the only way to defer capital gain tax on the sale of your rental house, and to avoid the dreaded 25 percent "recapture tax" on depreciation you have deducted, is to make an Internal Revenue Code 1031 tax-deferred exchange for another "like kind" rental or investment property of equal or g...