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!

[Brandon Hall]

@Kris Kahrs be very, very careful with seller financing. It may look great on paper until the day the year the new owner decides to sell. In that year, you'll be forced to take a tax hit and will have few options available to you.

My suggestion: consider taking a HELOC/cash out-refi to buy your next place. Rent out your old primary residence for 1-2 years and then sell it to enjoy your Sec 121 exclusion ($500k gains excluded) and have the ability to 1031 the remainder gains over into a new investment property.