A taxpayer generally may exclude up to $250,000 ($500,000 for certain married couples filing joint returns) of gain realized on the sale or exchange of a principal residence. To be eligible for the exclusion, the taxpayer must have owned the residence and used it as a principal residence for at least two years during the five-year period ending on the date of the sale or exchange.

Under the like-kind exchange rules of Internal Revenue Code §1031, a taxpayer defers recognition of gain on the exchange of property held for productive use or investment for like-kind property. Thus, a taxpayer defers a gain realized on a like-kind exchange until the disposition of the property received in the exchange. Also, the taxpayer generally has the same basis in the property received as in the exchanged property.

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