1) Do we qualify for the $500,000 exemption if the residence was only in my wife's name?
if a) you lived in the residence for any 2 out of five years before the sale, and b) the home sale exclusion hasn't been used by either in the two years before this sale, you qualify for the $500,000 exclusion. only one spouse needs to own the residence
2) Do we go through the "Sold a Home" steps in TurboTax, or the "Installment Sale" steps, or both?
reporting on the installment sales method is not required. If any portion of the sale is taxable, then using the installment sale method may save you some taxes. Use the installment sale form.
3) Am I right in assuming that we will still get the full exemption from taxes on the principal, and will only pay taxes on the interest we collect, reported each year as it is paid to us?
this depends on whether or not a portion of the gain is taxable. your allowable exclusion is not altered because you are using the installment sales method. Interest is taxable in the year received.
