Primary Residence with two lots tax question

[Ron Daugherty]

Question for the Tax Pro's out there.    We are considering the purchase of a home that include two city lots.  Currently a home is on one lot and the lot next door is vacant.  The purchase will be for both lots plus the home.

My question is this,  My wife and I plan to live in the existing house for more than 2 years, after that time we will build a house on the second lot and sell that home separately.   I think any profit on the new construction will be taxable since we are living in the existing home.  Am I correct in my thinking on that?  I think the only capital gain exemption would be the existing home we would live in? 

What about the lot that is currently vacant?  Would I be able to deduct it's value from the price of the new construction and not pay tax  on that portion of the sell since we will have owned it more than 2 years?   Would the value of the lot be considered a capital gain exemption?

Just wondering what some of the tax implications are going in.  I realize all of this can change before the two years, just wondering where I am tax wise before putting my offer together.