Can you avoid capital gains taxes on the sale of investment real estate if you use the proceeds to refinance the first mortgage on your principal residence?

Answer 1

No. You pretty much would need to "square up" with the tax man for the gain on your investment, when that gain is realized. What you use the gain for really isn't relevant....and in fact any money you use to purchase (which I guess is what you mean by refinance) your residence is after tax money anyway. The gain on the sale of your primary residence may be given some tax advantages, and that is a law very specifically sculptured for protecting the gains/equity of peoples resideces, (as differentiated to their other investments). Also, simply using gains made somewhere else to lower debt on your house, doesn't change the amount of eventual gain or loss on that property either anyway, just how much is needed to pay of the existing encumbrance. Consider, the amount it appreciated is still the same. Finally - if the tax considerations of selling your investment property are of real concern, you should consult someone about doing a qualified Sect. 1031 "Like Kind Exchange". (Avoiding tax is almost always impossible and perhaps illegal, this section of the law allows you to DEFER the tax on the gain of an investment, basically by reinvesting in another item - it can be physically different - like an apartment for an airplane - until the final qualified investment is liquadated. There are many requirments of all types, including reporting, to how it is done and an expert in the field really should be used).