Primary Residence - Capitol Gains Question

[Freeman W.]

I've owned (and lived in) my property for the last 4 years. Soon I will be knocking the old house down and building a new house on the property. According to the tax code, in order to qualify for the capitol gains exemption ($500k married) you must pass the "ownership test" of owning the property for 2 years and pass the "use test" of living in the property for 2 years.

Say I wanted to sell the newly built house immediately after it was built, would my 4 years of living in the old house on that property qualify my for the "use" and "ownership" test? Or do I have to live in the new house for 2 more years since its a new mortgage?

[Steve Babiak]

You are looking to take advantage of the section 121 exclusion, so that is the part of the IRS code you should be reading ...