Q. Can I also benefit from the exclusion?
A. No. You must have owned and lived in the home for 2 out of the last five years to qualify.
Q. Does the money I make count as something else?
A. Yes. You may get more than one opinion on how it should be treated:
1. The gain is interest on the "loan" you provided to your partner, and is reported as interest income.
2. The gain is a long term capital gain on your "investment" and is reported as such. This reduces your partner's qualifying capital gain for the exclusion.
3. The gain is a gift from your partner and he/she needs to file a gift tax return* (separate from an income tax return). You do not need to report anything.
I'm of the opinion, it's probably #1 (a loan). But, as others have said, a consult with a lawyer or tax professional may be appropriate.
*"Gift Tax" is somewhat of a misnomer. Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.
See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/... For 2024 the annual exclusion is $18,000.
