Sale of principal residence before two years

I have sold my primary residence that I have been living in for  less then 2 yrs.  I will be making money on it, but am going to be getting  a loan to build on land that we have.  That will be our primary residence  once it is completed.  Do we have to pay capital gain if we are going to  be putting that money back in to another home, even though it is not built  yet?

 

Section 1031 has no application here.   Instead your situation is governed by Section 121 and its regulations.  New regulations allow for partial exclusion of gain from the sale of your principal residence even if you sell it before two years of ownership.  Valid reasons for selling include change of employment, health and unforeseen change in circumstances.  If one of these reasons applies to you you may not be liable for capital gains taxes.