If you are living in this home, then you can claim the principal residence exemption on the gain. However, the sales price to your nephew will be readjusted to the market value of the property for tax purposes, because he is related to you.
It’s okay if he is paying you back over a number of years. I do suggest that you sell the property to him for market value, because he could be penalized when he sells the property in the future, assuming that this property will not become his primary residence. This is because his cost basis in the property will be very low (since you are selling the property to him below market value). As such, he will realize a large taxable gain when he eventually sells the property.
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