I've simply never heard of the reduced exclusion amount applying to the 3 year grace period, and none of the examples in the code section apply to the 3 year period, they all apply only to the 2 year ownership rule. Maybe this is a case where the law is more open ended and the IRS only wants it thought of in a certain way so they encourage one way of thinking and discourage others. I'd like to see some other experts look at this.
