Lets stick to the basics here and forget about all the extraneous information. Bottom line is, you want to sell the rental and keep your tax liability on the gain as low as possible. What you do with the money doesn't matter, has no bearing on this, and quite frankly, even the IRS doesn't care what you do with the money - so long as you pay your taxes. But lets see if the "5 year extension" for AD/MIL will help you with the capital gains tax exclusion.
Now being military very well may help. Not much, but possibly enough to make it worth it. So I need some details to work with.
On what date did you close on the purchase when you bought the house in 2008?
Were you AD/MIL on that date?
On what date did you move out of the house?
On what date did you convert the property to rental? Pay attention here. I'm not asking on what date you got it rented out. That doesn't matter. On what date did you "covert" the property to rental?
Are you still AD/MIL "right now"? If yes, are you looking to get out of the military before the end of 2019? If so, what date?
