Can I avoid capital gains tax by using profits from one home sale to pay for an existing second home?

So if I'm understanding correctly, it doesn't actually matter what happens to the money after the sale? If I qualify for the exclusion based on living in the home 2 out of 5 years, I can use that money however I want and still get the tax break? Also, does it matter that I own two homes? I've been living in the 2020 home for the past few years, not the 2016 one.

That's exactly right. The IRS doesn't care what you do with the proceeds after selling your home. What matters is whether you qualify for the Section 121 exclusion based on the ownership and use tests. It does matter that you own two homes when determining which one qualifies as your primary residence. Since you've been living in the 2020 home for the past few years and not the 2016 one, the 2016 home might not meet the "2 out of 5 years" use test required for the exclusion. The home being sold needs to have been your primary residence for at least 2 years during the 5-year period ending on the date of sale. So if you moved out of the 2016 home more than 3 years ago, you might not qualify for the exclusion.

How accurate is this compared to talking with an actual tax professional? I'm skeptical about AI tools handling complex tax situations, especially with real estate which seems to have tons of exceptions.

Does it work for investment properties too? I have a rental I'm thinking of selling, but I lived in it for 3 of the past 6 years before converting it to a rental.

The accuracy was surprisingly good - it actually caught things my CPA missed about documenting primary residence status. The system uses actual tax code and IRS rulings to analyze your situation, not just generic advice. I verified several points with my accountant afterward and he confirmed the analysis was correct. Absolutely it works for investment properties, including your situation with a converted primary residence. It specifically analyzes Section 121 exclusions alongside Section 1031 exchanges, and handles the partial exclusion calculations for properties that have been both primary residences and rentals. It would show you exactly what portion of your gains might be excluded based on your timeline of living there before converting it.

How does this actually work? The IRS phone system is notoriously impossible to navigate. Does this somehow skip the line or what?

Sounds like a scam. There's literally no way to "skip" the IRS phone queue. They probably just auto-dial for you which you could do yourself for free.

It uses an automated system that navigates the IRS phone tree and waits on hold for you. When an actual IRS agent picks up, you get a call connecting you directly to them. It doesn't "skip" the line - it just handles the waiting part so you don't have to sit there listening to hold music for hours. The service actually monitors call volume patterns and optimal times to call, which is why they can often get through faster than if you were trying randomly. I literally wasted days trying to get through myself before using this, and their system had me talking to someone in minutes.

So these improvements would increase my basis in the home and therefore reduce the calculated gain? I've done quite a bit to the house over the years - replaced all windows, completely renovated the kitchen, added a bathroom, and put in a new HVAC system. I didn't realize those would factor into the capital gains calculation.

Exactly right! All those improvements you mentioned increase your cost basis, which means less taxable gain when you sell. The formula is basically: Sale price - (Purchase price + Improvements + Selling costs) = Capital gain. Those renovations you mentioned are perfect examples of what qualifies. The new windows, kitchen renovation, additional bathroom, and HVAC replacement all increase your basis. Make sure you have documentation for these expenses if possible. Even if you don't have every receipt, estimates with supporting evidence (like before/after photos, contractor statements, etc.) can help if you're ever audited. This could potentially save you thousands in taxes!

The safe harbor rule usually applies to whether something qualifies as a repair vs. capital improvement, not to capital gains exclusions on home sales. I think you might be mixing up concepts?