@NewUserNov2020 wrote:
....do I have to live in it for two years and then sell it?
Per Section 121 of the Internal Revenue Code, you need to own the house and live in the house, as your principal residence, for two out the last five years leading up to the date of the sale (basically 730 days, which do not need to be consecutive). There are exceptions which don't seem to be applicable based on the facts you stated.
If you tear down the house that you were using as your principal residence and build a new one on the lot, then you would have to use that new house as your principal residence for two years (assuming no exceptions apply); the property includes the dwelling, not just the land, for the purposes of Section121.
There is actually a tax court case (not that they carry infinite weight) that is almost exactly on point.
See https://www.journalofaccountancy.com/issues/2010/oct/exclusion.html
