Best way to avoid paying Capital Gains Tax on primary residence?

[Kris Kahrs]

Hi All--my husband & I are in the process of selling our primary residence in Los Angeles.  We have a lot of equity, we've been in it for 20 years in a trendy neighborhood.  We bought the home for $230K.  We may have $100K in repairs & improvements to add to the basis.  The realtor thinks we'll sell for a little over $1.1MM.  If so, then not only would we pay capital gains on the after exclusion margin of perhaps $200K, but the additional income might very well push us into a higher tax bracket. We're trying to buy a place for $800K to take our property tax basis to a new property.  We would like to borrow against the new property, deposit the cash into a fund with an adequate interest rate so that we can offset the interest we're making on the investment against the interest rate on a line of credit.  

What is the most constructive, most tax-avoidant strategy here?  Any help is appreciated.  Thanks!