Q. Can I use capital gains from a rental house sale to pay off the mortgage on another rental house and avoid paying tax on the gain?
A. No.
There is a provision, in the tax code, to to use the proceeds of the sale to buy another "like kind" property, and defer (not avoid) the tax. But, specific procedures must be filed. Paying off a mortgage on an existing property would not qualify as a "like kind exchange".
