I appreciate everyone's input, though the question is moot because we have decided not to sell our house due to the high transaction costs/poor interest rate environment.
Opus 17's summary of the facts is accurate, and I apologize for any confusion caused by my original post. When I entered the sale of the second home in TurboTax last year, there was a worksheet that treated the spouses separately and calculated what portion of the $250,000 individual exclusion each spouse could claim for the sale based on length of residence. It only allowed us to exclude $250,000 in gains since only one of us lived there (husband's exclusion was 0/24 * $250,000). So it does seem like each spouse is treated separately if the full exclusion cannot be claimed. However, to avoid having to amend any taxes, we are going to wait until at least 2 years after the sale of house 2 before selling house 1. Thanks, Opus 17 and everyone else who took the time to respond!
