Okay, maybe I am confused. We did not gain anything on the previous sale . So why can we not use it this time? We did not take an exclusion the first time because there was no profit.
From IRS website
Eligibility Step 4—Look-Back
Determine whether you meet the look-back require- ment. If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year pe- riod.
