Primary home exclusion does it apply to owner will carry?

[Vegasly123]

If I decide to sell my primary residence via owner will carry where I become the lender, do I still get the 250k/500k capital gains exclusion? Or does it get spaced out by the term? Or I won’t be able to get it?

[PattiF]

Yes, you are able to use the exclusion of gain when you sell your primary residence as a seller-financed sale.

From IRS Publication 537:

Sale of your home.

If you sell your home, you may be able to exclude all or part of the gain on the sale. See Pub. 523 for information about excluding the gain. If the sale is an installment sale, any gain you exclude isn’t included in gross profit when figuring your gross profit percentage.

Installment Sales

If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an installment sale. If you have an installment sale, report the sale under the installment method unless you elect out. Even if you use the installment method to defer some of the gain, the exclusion of gain under Section 121 remains available. Refer to Publication 537, Installment Sales, Form 6252, Installment Sale Income, and Topic No. 705, Installment Sales, for more information on installment sales.

[Vegasly123]

Thank you for the answer. I was wondering do I take the capital gain and the exclusion at the first point of sale, then just take the interest every year as ordinary income? Or do I take the capital gain and exclusion at the point when the buyer pays off the loan? 

[PattiF]

You would take the capital gain upfront when you are doing the calculations while figuring out the gross profit percentage. 

The interest would be reported on Schedule B as interest every year.

@Vegasly123