We are currently purchasing a new home and attempting to sell our current home (no mortgage on current home). We were going to use the proceeds of the sale to purchase the new home.

As we have not yet sold our current home so we are getting a mortgage on our new home.

One of the alternatives in selling our current home is to sell it but hold the mortgage, so the buyer would be paying us monthly. We would then use this money to pay the new mortgage.

What I am unsure of is what that means from a tax perspective. Is this considered income even though I am using it to pay our new mortgage? Are there other alternatives I have not thought of?

If you hold the mortgage on the old property then the interest you receive is indeed taxable income to you, and the principal payment is not. Likewise, the interest you pay on the new mortgage is deductible, but the principal is not. So it all works out. If your new mortgage is equivalent to the mortgage you hold on the old property, you come out even.