Tax implications of selling current home and buying childhood home through land contract

Thanks for the info! Does it matter if there's some time between selling the old house and finishing the payments on the land contract? Like if I sell now but don't fully pay off the land contract for another 6 months?

The timing between selling your old house and paying off the land contract doesn't typically affect your eligibility for the capital gains exclusion. The IRS is primarily concerned that you've used the property you're selling as your main home for at least 2 out of the 5 years before the sale. As for the new property, what matters is that you intend to use it as your primary residence. The fact that you're using proceeds from your home sale to pay off the land contract just shows you're rolling your housing investment forward, which is exactly what the primary residence exclusion is designed to accommodate.

How detailed do you have to be with the documents? Do they need the full land contract agreement or just basic info about both properties?

Sounds interesting but I'm skeptical. How do they handle situations where you've already started one purchase before completing the other sale? That's the tricky part in OP's situation.

For the documents, you just need to provide whatever you have - they're pretty flexible. I uploaded my closing statements from both properties, the sales agreement, and proof of primary residence (utility bills). They handle partial documentation really well. For overlapping transactions, that's actually their specialty! They specifically analyze the timing between transactions and how it affects your tax situation. They'll look at when you established residence in each home, when you started the land contract versus when you sell your current home, and make sure everything aligns with IRS requirements for the primary residence exclusion.

Wait, how does this actually work? Do they just sit on hold for you? Seems too good to be true.

Yeah right. I've tried everything to get through to the IRS and nothing works. I'll believe it when I see it. The IRS phone system is designed to be impossible.

They use an automated system that connects to the IRS phone line and navigates all the prompts for you. Then their system holds your place in line and calls you when they've got an actual human IRS agent on the line. You just answer your phone and you're immediately connected to the IRS agent - no hold time for you. It's not magic - they're basically just taking the wait time burden off your hands. My call was returned in about 2 hours when the estimated wait was 3+ hours. For something complicated like property sales and capital gains exclusions, speaking directly with the IRS gave me definitive answers about my situation.

Thanks for bringing this up, but these are both primary residences. We've lived in our current home for 6 years, and the childhood home will become our new primary residence once we complete the purchase. So I think we should qualify for the capital gains exclusion rather than needing the like-kind exchange rules.

You're absolutely right that the primary residence exclusion is your best option here. Since you've lived in your current home for 6 years, you easily meet the 2-out-of-5 years requirement. I mentioned like-kind exchanges just as an alternative for readers in different situations, but your plan to use the Section 121 exclusion for primary residences is perfect for your situation. Just make sure to keep good records of both transactions for your tax files.

I used TurboTax last year for my home sale. It asks all the right questions about how long you lived there and the purchase/sale prices. Just make sure you have all your closing documents handy. The land contract part might be trickier though.